Still Expecting Further Reaction Back Into The Trading Range

For the last 5-6 weeks we have given the continued reasoning to expect a reaction back into the recent trading range.  The price and volume action continues to be very slow and volatility still declining.  We have had a slight deterioration in price over the last few weeks, and we are now trading right at the resistance line at the top of the trading range.

We are trading just above our recent sell levels at “B” and “D”.   We had expected further weakness last week, instead we had a slight recovery in price.  We are still expecting further weakness from these levels before we turn more friendly.

The S&P and Nasdaq Indices were both higher for the week as well, and outperforming to the upside.

This past weeks action still supports the fact that the recent rally to “Z” is simply a rally to test the resistance at the top of the trading range. We therefore expect a further correction back to the middle or lower portion of the recent trading range, and wait for ending action once again.  Currently, the supply at the top of the trading range has pushed the Wyckoff Wave slowly back into the trading range.

The Optimism – Pessimism Index touched another new recovery high last Wednesday with the Wyckoff Wave still lagging.   We feel that this divergence could still lead to more downside.

We were stopped out of our additional short positions on last weeks rally.  Our original shorts are still on with our stop level shown on the intra-day chart.

The moderate negative readings from the Force Index has supported the idea of a correction here.  The Force Index rallied into Wednesday but turned down again Thursday/Friday and is currently trading at -157.  This reading is still applying some downside pressure on the Wyckoff Wave.

The recent trading action still supports the reaction scenario back into the middle of the recent trading range at “U”.

While the Wyckoff Wave will most probably not be putting in a Last Point of Support on any expected reaction here.   If strong volume would come into the upside, this scenario would have to be back on the table.  We would expect more weakness before entertaining that idea.

Good Trading,

Todd Butterfield