Thursday Is A Critical Day

Wednesday, August 31, 2016

My apologies for the delay in sending Wednesday’s report. We were having significant server issues and I was unable to access the charting service.

On another note, I will be traveling on Friday to watch my granddaughter play in her first college soccer game. Papa wouldn’t miss it for the world. The Friday Pulse of the Market report will be sent out on Sunday.

Click here to open the attached charts

What To Do?

Short Term:
Yesterday’s recommendation of taking new positions to the upside is withdrawn.
Short-term bears who did not close positions yesterday, should maintain them. They should be closed if strong demand comes into the market. If the Wyckoff Wave puts in a successful Last Point of Supply, new positions can be taken to the downside.

Intermediate & Long Term:
Their are no intermediate or long term opportunities to the upside.
Long-term positions to the upside should be maintained.
There are no intermediate or long term opportunities to the downside

Market Trends:

Intra-day: Down
Short Term: Neutral
Intermediate Term: Neutral
Long Term: Neutral

The stock market, as measured by the Wyckoff Wave, traded lower on increased volume. It closed in the upper half of a narrower price spread, in a neutral condition relative to the Technometer. The price spread and volume suggest the presence of demand.

A review of the intra-day waves confirms the above. After a gap opening to the downside and a brief, 5 min., follow-through, the Wyckoff Wave rallied to point B. The rally was on a lack of demand.

Then, the Wyckoff Wave began a long, slow three hour and 25 min. reaction to point C. The reaction was on relatively narrow price spread and low volume. While supply was certainly present, it was not dominant.

Demand returned and the Wyckoff Wave rallied for the rest of the trading day. The rally was on wider price spread and higher volume.

On the reaction to point C, the Wyckoff Wave did not reach the support line of its intra-day down trend channel. The rally off point C weakened that channel. Both these events give the Wyckoff Wave an opportunity to continue to rally and test the support, now resistance line drawn from point U.

The Wyckoff Wave is in an intra-day negative divergence with its O-P Index, when compared with point V. While this could be a negative indication, the O-P Index could also be leading the Wyckoff Wave. The amount of demand coming into the market today will, most probably, resolve that issue.

Thursday is a critical day. If the Wyckoff Wave can continue to rally and move through the support, now resistance line drawn from point U, it has an opportunity to rally back to top of the trading range.

If demand is withdrawn and the Wyckoff Wave is unable to rally through that line, things change dramatically. The reaction from point V to point C would be a Sign of Weakness and the failed rally would be a Last Point of Supply. This would give the Wyckoff Wave an opportunity to react back into the trend channel and below.

It will be extremely important to watch the quality of demand during the trading day.

The Optimism – Pessimism Index rallied. It remains in a short-term positive divergence with the Wyckoff Wave, when compared with point G.

Tomorrow, the Technometer will open in a neutral condition.

Today, the Wyckoff Wave did not rally, as expected. This has caused me to re-analyze every scenario. While it appeared that the Wyckoff Wave had met support in the area of point H and would simply rally back towards point F, today’s market action is not consistent with that scenario.

The Wyckoff Wave could be putting in a spring of the sideways movement from point G. This would confirm my earlier observations and allow the Wyckoff Wave to rally back towards point E.

Springs must be confirmed by strong demand after the support is penetrated. Some demand did come into the market. So far, it is not enough to justify calling Wednesday’s market action a spring.

The other option is a Sign of Weakness or Fall Through The Ice. This came this into play as the Wyckoff Wave reacted through point H. The success of this scenario also depends on the quality of demand that comes into the market today. If the demand dries up and the Wyckoff Wave is unable to rally back into the sideways movement, we will see a S Point of Supply and the Wyckoff Wave will most probably react and at least test the lows at point D.

While this scenario was not given a high probability of success, today’s market action places it back in the spotlight.

There are two indicators that must be considered when analyzing the Last Point of Supply scenario. The first is the relationship of the Wyckoff Wave with its O-P Index. For quite some time the O-P Index has been stronger than the Wyckoff Wave. While this effort can pull the Wyckoff Wave along, there is now an upside negative divergence with the high at point E.

On the other hand, the Wyckoff Wave has already reached its objective on the 100 Point & Figure chart. The count is taken along the 43,000 line of the sideways movement that began in July and includes points E and F. The objective is 42,100. Yesterday the Wyckoff Wave closed at 40,805.

Regardless, the amount of demand comes into the market today will go a long ways toward deciding which scenario will be successful.