The Battle Between Demand & Supply

Click Here For Wyckoff Wave Chart 10-30-2015

This past week proved rather uneventful, as the Wyckoff Wave moved sideways in a rather narrow trading range. It continues to hover near two fairly significant resistance points. The supply lines of both the short term up trend channel and intermediate down trend channel.

So far, the Wyckoff Wave has been unable to identify an initial resistance point that would mark the top of its trading range. That trading range began with a rather significant Selling Climax, at point Q on the daily chart. The struggle to identify the resistance is, most probably, do to the relatively large amount of demand that is still in the market.

The purpose of a trading range, that ends with an important up move, is to allow major entities to accumulate large positions in individual stocks. While they purchase large quantities of shares, over an extended period of time, these large interests also need to discourage buying from the general public.

One way this is done is by selling stock at the top of the trading range and then gradually reacquiring it, at lower prices, as the trading range continues his sideways move.

Eventually, these large buyers will see a significant lack of demand at the top of the range and a dullness within the trading range itself. The weaker hands are concluding that the market will not move up and they choose not to take positions that will not show them an immediate gain.

That sets the stage for ending action and the mark up phase.

If this trading range is going to succeed, supply needs to come into the market and drive the Wyckoff Wave down towards the initial support at points U or Q.

It appeared this was going to happen at point V, but the supply that came into the market was met by good demand. In fact, demand was strong enough for a one-day rally that drove the Wyckoff Wave above point the demand enabled it to test the supply lines mentioned above.

Once again, the Wyckoff Wave is moving sideways. The major players appear to selling stock in the hopes that supply will overcome demand and the Wyckoff Wave will react.

This relatively strong demand is quite apparent on the intra-day chart. The October 22nd strong move to the upside created an intra-day trend change from neutral to up. The rally begins at point O and ends at point T. There, some demand was withdrawn and the Wyckoff Wave reacted. This reaction changed the intra-day trend to down. The trend channel is drawn in red, from points T & U.

However, once again demand returned to the market and stopped the intra-day reaction in its tracks. This demand took the Wyckoff Wave to point X, where it again encountered supply and reacted to point Y. Both these moves were very brief, but they and suggested that supply was unable to take control.

The Wyckoff Wave is also establishing intra-day support and resistance points as this sideways movement developed. They are drawn in green.

Once again, demand returned and the Wyckoff Wave put in a strong rally to point Z. While the Wave moved above point R, it did again encounter supply, in the area around point T.

This time, supply did not come into the market. Instead, the Wyckoff Wave reacted on relatively narrow price spread and reduced volume to point A. This suggests a lack of supply. The lack of supply created another opportunity for demand to come into the market. The Wyckoff Wave did make an attempt to rally, but the rally petered out at point B. It then moved sideways to point C and put in another poor quality rally to point D.

Both these intra-day week rallies provided an indication that demand was beginning to dry up. The door was wide open for demand to take the Wyckoff Wave higher and the effort just wasn’t there.

Later in the day, on Friday supply came back into the market and the Wyckoff Wave reacted to a poor close. It now has an opportunity to continue to react and move through the support at the bottom of this little sideways movement.

If the Wyckoff Wave is able to react strongly past point Y and return to that intra-day down trend channel, it could be an indication that demand has finally been withdrawn and we have seen an important first high in the developing trading range.

Small waves often turned into big ones. That’s why analyzing the intra-day data is so helpful.

Two of the three Wyckoff tools support the reaction scenario. The Optimism – Pessimism Index is in a significant negative divergences and inharmonious actions, with the Wyckoff Wave, beginning at point F.

The Force Index, which put in a strong positive readings at point V, is reacting and is now producing moderately negative readings. This would suggest investor sentiment is becoming more bearish.

The third Wyckoff indicator is the Technometer. It is in a neutral condition. However, it could easily move into an oversold condition early in any reaction.

If the Technometer becomes extremely oversold, it would be difficult for the Wyckoff Wave to react all the way back to the lows at points U and Q.

This would suggest, there will not be a sharp reaction, but a more subdued reaction and another test of the earlier highs.

One scenario would have the initial reaction ending in the area of the top of an earlier intra-day sideways movement. Notice the resistance lines drawn through points E, G, J, L and N. These can become support lines and become the stimulus to make that testing rally mentioned above.

This intra-day resistance, now support line, is also in the vicinity of the more important support line drawn, on the daily chart, from point E.

If these scenarios play out, the Wyckoff Wave may show was the first important resistance point in the developing trading range. Him him him