Trading Ranges

Click Here For Wyckoff Wave Chart 05-09-2014

This past week the Wyckoff Wave moved sideways in a very narrow trading range. It has been unable to leave the trading range to the upside and take out the highs at points D and F. Conversely, it has been supported before reacting to test point E.

There is also a developing apex, which is been drawn on the daily chart in red.

The move from point D has lasted for 14 trading days. This is long enough for this to become its own little trading range. If this is the case, we need to wait for new ending action.

While this can be frustrating to traders and investors who would like to take new positions, it is important to understand that, like it or not, stocks spend most of their time in some sort of a trading range or sideways movement.

In short, most of the time stocks do nothing. To make that point, simply take five or six randomly selected charts, go back over the past few years and identify how many entry points were available to Wyckoff students. There probably will not be as many as you might have thought.

An example can be found on the Wyckoff Wave’s weekly chart. Over the past four years, there have only been a few instances where new intermediate or long term positions could have been taken.

The first was in the trading range marked by points A – D. There was a spring at point B. This was followed by a sign of strength to point C and a reaction to a Last Point of Support at point D.

While short-term bears could have taken positions at point U, the next real opportunity was the 2011 trading range that included points X through P. The spring at point H was followed by a Sign of Strength to point K and a Last Point of Support at point P.

Next, there was a long trading range that began with climactic action in March 2012 at point U. The Wyckoff Wave moved sideways for eight months until it sprung the trading range at point D. There was a sign of strength within the trading range to point E and a Last Point of Support at point F.

The Wyckoff Wave then penetrated the resistance (jump the creek) at the top of the trading range and had a major Last Point of Support at point H.

The last major trading opportunity was a year ago May. This trading range is marked with resistance at points K, M and O. The support is at points L and N. There was no spring, just a Sign of Strength within the trading range and a Last Point of Support at point P. It should be noted that at this level, the Wyckoff Wave had reached the highs of the rally before the 2008 bear market. This meant there was a great deal of overhanging supply that needed to be taken in and this became evident as the Wyckoff Wave slowed its advance.

Then the Wyckoff Wave rallied to point S, put in a slight correction and has moved sideways ever since.

While this review suggests that there were very few opportunities to invest in the market, intermediate and long term Wyckoff students, who entered the market at these levels and then adjusted positions on reactions to support lines or as new trading ranges developed, have been extremely successful.

Where’s the market going from here? So far, there are no indications it is distributing or preparing for a reaction. The supply being dumped on the market is happily being taken in.

Sometime, in the reasonably near future, when little supply is left, there will be new ending action of some sort. This will set in motion the next advance in this wonderful bull market.

Let the market come to you. Patience equals profits.

There will be no blog post next week. I will be attending my grandsons college graduation.