Tomorrow is Important

Click Here For Wyckoff Wave Chart 01-27-2016

Short Term:

There are no opportunities to the downside

Short-term bulls should continue to consider new opportunities to the upside. They could come in the form of a spring or a successful test of the trading range lows.

Intermediate & Long Term:

Intermediate and long-term bulls should maintain existing positions.

There are no intermediate or long term opportunities to the downside.

Market Trends:

Intra-day: Down, but weakened and in an oversold position

Short Term: Down

Intermediate Term: Down, but weakened and in an oversold position.

Long Term: Neutral

The stock market, as measured by the Wyckoff Wave, traded lower on increased volume. It closed near the bottom of a wider price spread, in a neutral condition relative to the Technometer. The price spread and volume suggest the presence of supply.

A review of the intra-day waves confirms the above. After a wide gap opening to the downside, the Wyckoff Wave continued to react for the next 60 min. Supply dried up at point T. Demand came into the market and the Wyckoff Wave rallied to point U on good demand. As it reached its intra-day down trend channel’s supply line, at point U, supply returned and the Wyckoff Wave reacted for the rest of the trading day.

The afternoon reaction moved the Wyckoff Wave into an oversold position relative to its trend channel. It is also testing the low at point H.

Today’s supply was both good and sustained. This places the low at point H (point G on the daily chart) in jeopardy.

This would suggest the test of point H could be of poor quality or possibly even fail. This scenario would stay in place even if the Wyckoff Wave rallies tomorrow on reduced price spread and volume.

The Optimism – Pessimism Index rallied slightly. It continues in the lower portion of its upward trend channel. The positive inharmonious action with the Wyckoff Wave, when compared at point U has become a positive divergence. The positive inharmonious action, when compared with point Q remains in place.

The Force Index reacted slightly and is still producing high negative readings.

Tomorrow, the Technometer will open in a neutral condition.

Today’s reaction suggests the Wyckoff Wave will put in a poor quality test of point G and test the Selling Climax at point Q. This is due to today’s presence of good supply reflected in the wider price spread and volume. This puts the low at point Q in jeopardy.

Tomorrow is an important day. The Wyckoff Wave could experience four different scenarios.

1. The Wave could successfully test point Q and a rally.

2. The Wave could react through point Q into new low ground. This would be followed by a Spring

3. The Wyckoff Wave could react through point Q into new low ground. This would confirm the move from point D is a Sign of Weakness.

4. The Wyckoff Wave could put in a poor quality rally, but possibly weaken its short-term down trend channel.

5. Strong demand to come into the market and the Wyckoff Wave could put in a successful test of point G.

While scenarios 3 and 5 need to be considered, they have the lowest probability of success. The lack of effort, shown by the O – P Index makes it difficult to justify a Sign of Weakness. If this scenario plays out, it will happen early in the trading day, as the Wyckoff Wave needs to go and go now if it is going to penetrate the bottom of the trading range.

It is doubtful the Wyckoff Wave will produce the level of demand necessary to strongly reversed direction to the upside. If it takes place, it will also happen early in the trading day, possibly fueled by a wide gap opening to the upside.

The remaining three scenarios all have a reasonable probability of success.

Even if the Wyckoff Wave puts in a poor quality rally (scenario 4), it would then have a second chance to react and test the low at point G.

This leaves scenarios 1 and 2. They are both supported by the lack of effort that has been shown, throughout the reaction from point D, by the Optimism – Pessimism Index.

Both should be watched closely and if the Wyckoff Wave does Spring of the trading range, it would be an opportunity for new positions to the upside.

Charts of the Wyckoff Wave are attached.