Testing Support, What’s Next?

Technical Analysis of Stock Trends, The Wyckoff Wave – Week in Review August 26, 2016

Click here to view the Wyckoff Wave Three Month & Intra-day Charts

The Wyckoff Wave spent another, rather dull, summer week testing the support that has developed as it gradually moved sideways from point G.

Friday’s market action was rather interesting and it may be signaling the end of this rather uninspiring sideways move.

Note that point E, on the intra-day line chart, is the same as point H on the three-month vertical line chart. The line chart offers a more in-depth view of how the Wyckoff Wave is testing support at the bottom of the sideways movement.

On Friday the Wyckoff Wave experienced an intra-day failure to the upside. This is best shown on the intra-day line chart, as the Wave rallied to point T. This intra-day rally produced two important points, that need to be reviewed.

The first is that, on the intra-day rally, the Wyckoff Wave noticeably weakened its intra-day down trend channel. The second is that almost half of the rally was on a gap opening to the upside. These suggest that after testing the low at point E, there was enough demand to cause a rally back into this intra-day trading range. It also suggests that there was not enough demand to allow a significant move to the upside.

While the intra-day rally only lasted about 45 min., it did suggest the Wyckoff Wave was not ready to react strongly through the support that began at point G on the vertical line chart.

As expected, there was not enough demand to continue the intra-day rally. Supply returned and the Wyckoff Wave quickly reacted back to test the previous low at point S.

As you can see on the intra-day line chart, the Wyckoff Wave reacted through point S. This placed it in a position to continue the reaction through the support. To do that, it needed to react strongly or, in Wyckoff terminology “go and go now”. That didn’t happen.

Notice the subsequent intra-day thrusts to the downside were reduced and supply was withdrawn at point U.

Then, the Wyckoff Wave rallied back into its intra-day trading range and slightly penetrated the support line, drawn in green, that began at point E.

A reasonable question is, was the move to point U a Sign of Weakness (Fall Through The Ice) and is the rally to point V a Last Point of Supply?

While anything is possible, the shortening of the thrusts on the reaction to point U suggested the Wyckoff Wave was meeting support. This doesn’t usually happen during a Sign of Weakness.

In addition, the Wyckoff Wave rallied to point V on reasonably good price spread and volume. While demand was not terribly strong, it was not drying up. Late in the trading day, the Wyckoff Wave reacted, and, while it is not easily seen on this chart, the nature of the reaction suggested the presence of some demand.

The fact that demand was not particularly strong, suggests it will be difficult to call the move to point U a Spring. Unless stronger demand returns on Monday, the Wyckoff Wave is probably putting in a new support area in the sideways move from point G.

The presence of some demand does give the Wyckoff Wave an opportunity to rally on Monday and test the supply line of its intra-day down trend channel.

It also suggests that, at least for now, the Spring and Sign of Weakness scenarios have a relatively low probabilities of success.

If the Wyckoff Wave begins a rally on Monday, it will be important to watch the rally’s quality, especially if it is able to return to the gap area and test the resistance at point F.

While there is enough potential on the 100 Point & Figure chart to give the Wyckoff Wave an objective above point E, it is quite possible the Wyckoff Wave will run out of demand in the area of point F. That would make it vulnerable to a more significant reaction back into the trading range that began in late August 2015.

If that event occurs, there is a good probability the short-term trend will change from neutral to down.

This continuation of the trading range will give the Wyckoff Wave an opportunity to move closer to the all-important ending action.

It would appear that before the Wyckoff Wave can move higher, weaker hands need to be driven from the market. A fall reaction might just do the trick.