Technical Analysis of Stock Trends, The Wyckoff Wave – Week in Review September 16, 2016
The Wyckoff Wave spent the past week testing an important support area. That is the support line drawn from point D on both the vertical line charts. The overall daily volume, for the week, was relatively high. This could suggest that supply has not dried up. It also could suggest that some demand was present.
In addition, the Wyckoff Wave’s Technometer has been in an oversold condition throughout the week. Finally, the Wyckoff Wave is in a positive inharmonious action with its Optimism – Pessimism Index, when compared with point D.
The week’s market action and these indications from the Wyckoff tools suggest that we can consider three different scenarios. One of these should forecast the Wyckoff Wave’s next move.
They are, listed in probability of success:
1. The Wyckoff Wave will rally off the support and continue the trading range phase that began at point D.
2. The Wyckoff Wave will Spring the support and put in intermediate term ending action.
3. The Wyckoff Wave will continue to react (Fall Through The Ice) and move towards the bottom of the trading range.
The rally off the support has the highest probability of success. Every day during the past week, the Wyckoff Wave has experienced an intra-day reaction and successfully tested the support line drawn from point D. It has not gone through a Spring nor, has supply driven it through the support back towards the bottom of the trading range. It is somewhat unusual for an index or a stock to move sideways for five days, at an important support point, and then react through that support.
In addition, the positive inharmonious action with the O-P Index suggests there has been quite a bit of effort to the downside. However, the Wyckoff Wave has not matched that effort. That effort was not only presented in the O-P Index numbers, but also in the relatively high volume we have seen this week.
Finally, the oversold Technometer suggests the Wyckoff Wave is ready to rally. It is also extremely unusual for a stock or an index to continue to react in the face of an oversold Technometer. Even after five consecutive oversold days, on Monday, the Technometer will open in a slightly oversold condition.
Finally, an analysis of Friday’s intra-day waves indicates that after reaching the high for the day, relatively early, the Wyckoff Wave reacted on a lack of supply. Then, during the afternoon, demand returned and the Wyckoff Wave rallied.
On the reaction, the Wyckoff Wave was unable to return to its short-term down trend channel. In addition, the Wave has not been able to reach the channel’s support line since the very slight August rally to point H.
While it will not be confirmed until Monday, it is possible that the Wyckoff Wave has successfully tested this important support area and is ready to rally back towards the top of the trading range.
If this scenario plays out, the Wyckoff Wave will not have gone through ending action. This suggests the sideways movement, with resistance at point E and support at point D will continue.
The scenario with the second highest probability of success is the Spring. The Wyckoff Wave could still react through the support line, drawn from point D, encounter demand and rally. This would Spring the support.
As mentioned previously, this past week’s volume has been relatively high and is not in concert with the normal drying up of supply. While the price spread has narrowed slightly since Monday (point K), there are still suggestions that supply is present and will make one last effort to move the Wyckoff Wave to the downside.
However, every time the Wyckoff Wave has attempted to react, it encountered demand and put in some sort of an intra-day rally. For the past five days, while supply has been present, it is not been sustained. This, plus the above observations suggest that while a Spring is always possible, it has a moderate probability of success.
Finally, strong supply could come into the market and the Wyckoff Wave would react sharply through the support and continue towards the bottom of the trading. This scenario has an extremely low probability of success.
Signs of Weakness happen quickly and definitively. If the Wyckoff Wave was going to “Fall Through The Ice” it would, most probably, have already done so.
In addition the oversold Technometer is a significant indication that the reaction off point E, has probably come to an end.
It appears that the long, drawn out, trading range, that began in August, 2015 still has a ways to go.