Trends: An Important Part Of Wyckoff Strategies and Techniques

Click Here For Wyckoff Wave Chart 12-13-2013

This past week the stock market, as measured by the Wyckoff Wave, confirmed a new short-term down trend. The new trend is drawn on the daily chart, with a supply line through points D and F. The parallel support line is through point E.

Some might say that the trend was established when the Wyckoff Wave put in a lower low at point F. In hindsight, that was certainly correct. However, I am quite conservative when it comes to changing trends and adding new trend channels. I am more interested in how a stock behaves in a trend then being in a big hurry to establish a new one.

Trends are established after the initial entry points, where investors can take a position, have passed. After a position is taken, they are terrific tools that monitor the progress of a position and give us an excellent indication as to the relative strength or weakness of the stock. They are also very helpful when looking for additional entry points to add on to existing positions.

In this case after the rally to point F did not take out the high at point D, the Wyckoff Wave reacted and put in a new low at point G. Once the second low was established, it was reasonable to change the trend.

However, I didn’t do that. The Technometer was in an oversold position and it was quite possible the Wyckoff Wave had one more rally. The Wave did rally off point G, but it was of poor quality and showed a definite lack of demand. This suggested the Wyckoff Wave was not going to test the highs at points D and F, but would continue to react.

It is also important to note that when the Wyckoff Wave reached the supply line of the new short-term down trend channel, at point H, it really ran out of demand and supply came into the market. For me, this confirmed the new down trend.

This past week, the Wyckoff Wave reacted quickly back to the trend channel’s support line, where it saw some support. So far, the rally off that support has been of poor quality. This adds more fuel to the Wyckoff Wave will continue to react back towards the top of the trading range scenario.

In fact, there is a count of 1, 400 points on the attached Wyckoff Wave 100 Point & Figure chart. The count is along the 39,800 line and gives us objectives of between 38,400 & 38,100. The top of the trading range is at 38,070.

The new short-term trend line has been respected at point G, H and at Thursday’s low price. This would suggest that the Wyckoff Wave will continue to react back towards the top of the trading range and, as has been previously mentioned, put in an important Last Point of Support. If that happens, it will be important to see what clues the new trend channel will be providing.

It is also important to understand the different types up trend channels and when a trend changes. The four types of trends are:

1. Intra day Trend. Measured in hours and days.
2. Short-term trend. Measured in days and weeks.
3. Intermediate term trend. Measured in weeks and months.
4. Long-term trend. Measured in months and years.

The most important trend to an investor or trader is the one which he or she is trading at a time. While it is helpful to pay attention to the intra-day and short term trends, intermediate and long-term investors are much more focused on how their portfolio stocks are relating to their intermediate and long-term trends.
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Presently the intra-day and short term trends of the Wyckoff Wave are down.
The intermediate and long-term trends are up.

Interestingly, in this market, some of the trends have morphed together.

For example, right now the short term down trend, on the daily chart, it is also the intra-day trend on the intra-day chart. The intra-day trend, which began at the end of November, simply kept continuing. While it was weakened, the trend was never broken. Therefore, there was no reason to change the trend on the intra-day chart.

The old short-term uptrend channel has now become the new intermediate term up trend channel.

The short-term up trend, which began at point Z (support line Z – B and a parallel supply line through point A) has stated in place since last August. Even though it exceeded the basic criteria, trend should not be changed until there is a specific reason to do so. The new short-term down trend created the reason.

Once we had a new short-term down trend channel, it was logical to change the intermediate-term trend from neutral to up.

Trends are extremely important. They are wonderful guidelines as to the relative strength in weakness of the stock. They are best used to analyze a stock, or in this case an index like the Wyckoff Wave, when they approach their support and supply lines. These overbought or oversold positions can indicate a change in the trend or relative strength of the trend.

This is why it is important to extend trend lines and be cautious when establishing new trends. Once correctly established the trend can provide helpful information for a long period of time.