The Intra-day Trading Range That Never Ends

Click Here For Wyckoff Wave Chart 08-09-2013

On July 11th the Wyckoff Wave rallied to point T on the daily vertical line chart. It paused for three days and then rallied to point U. In those three days, the Wyckoff Wave established an intra-day trend. At the time that trend appeared on the intra-day line chart.

After moving sideways for those three days, the Wyckoff Wave attempted to leave this intra-day trading range to the upside. On an intra-day basis, it jumped the Creek (penetrated the resistance at the top of the trading range). This type of Creek jump is not nearly as significant as one that penetrates a more significant trading range to the upside.

However, it was a jump across the Creek that was done on good price spread and volume. The Creek jump was completed at point U.  Now, Wyckoff traders waited for the backup to the Creek for a minor Last Point of Support.

A successful backup is a reaction on reduced spread and especially lower volume. This happened on the reaction to point V. It should also be noted that while some supply did come in on the reaction from point U, it was never sustained. This was also true on an intra-day basis. Often supply would be present early in the trading day but dried up during the afternoon. This was an opportunity for demand to come into the market. However, while demand did appear, it was rarely strong and quickly died out.

This lack of demand caused the Wyckoff Wave to return to the intra-day trading range. There was no Last Point of Support. While supply did diminish, it was not replaced by strong demand. This trading range is drawn in light blue on the daily vertical line chart and in red on the intra-day line chart.

This is a critical point. Just because a stock jumps the Creek does not mean that there will be a successful backup. Just because a stock backs up (reacts) on reduced price spread and volume, does not mean demand will automatically come into the stock. Both sides of the equation need to produce in order for the event to be successful.

In this case, while a strong case could be made that supply was drying up, demand never appeared. This meant the potential Last Point of Support was doomed and the Wyckoff Wave would return to the intra-day trading range. Due to its length it is now becoming a mini trading range.

The Wyckoff Wave again attempted to leave the mini trading range to the upside as it rallied to point W. The Wave jumped the Creek on good spread and volume, but immediately ran out of demand at point W. It again reacted back into the trading range.

Once again, when demand should have come into the market, it stayed on the sidelines. The Wyckoff Wave fell back into this mini trading range, which has now lasted over a month. Once again, Wyckoff traders are waiting for ending action.

Ending action is one of four events. If a stock is prepared to move to the upside, we can see a spring or a jump across the Creek. If a stock is prepared to move to the downside ,we can see an upthrust or a fall through the ice (good penetration of the support at the bottom of the trading range).

The inability of the Wyckoff Wave to leave the trading range to the upside at point W and the fact that we did not see an upthrust there, suggests the spring scenario could be looming on the horizon.

On Friday, the Wyckoff Wave penetrated the support line of the mini trading range. Was this a spring?

It is extremely important to remember that every Wyckoff event involves both supply and demand. Think about the definition of the spring. Supply drives the stock through the bottom of a trading range. Then demand appears and the stock “springs” strongly back into the trading range. Demand must come into the market for a spring to be successful.

Too many people see the penetration of support and automatically assume there is a spring. Until it is confirmed by demand, the spring has not sprung.

This is what happened on Friday. While the Wyckoff Wave certainly did penetrate the resistance in the mini trading range, the intra-day rally, which you can see on the intra-day chart, was of poor quality. Therefore, the spring has not yet been confirmed.

The Wyckoff Wave now has several options. These options and their level of probability were presented in Friday’s Pulse of the Market Report. We should see the answer early next week.

The answer hinges on demand. Will demand that has been absent during most of this month-long mini trading range return or will the Wyckoff Wave either react or move sideways? What signals are the Wyckoff tools like the Optimism – Pessimism Index, Technometer and Force Index sending?

While the intra-day trend of the market remained neutral, both the short and intermediate term up trends have been weakened. However, the Wyckoff Wave is firmly in the upper quadrant of its long-term uptrend channel.

What started out as a minor intra-day trend channel has lasted a month and has presented some excellent examples of how supply and demand function in the stock market.

For whatever reason, despite ample opportunity, demand has not come into the market.
What it does, we will see the rally continued. Until then the sideways movement that began back in late in May, at point J, will continue.