Waiting For The Market To React. Can Intra-day Waves Provide Clues?

Click Here For Wyckoff Wave Chart 11-14-2014

Last Friday, November 7th, the Wyckoff Wave had completed a fairly unimpressive week. While it penetrated the top of the trading range, it did so on rather poor quality. The Technometer was in an overbought condition and the Wyckoff Wave indicated a lack of demand.

This past Friday, November 14th, the Wyckoff Wave completed a fairly unimpressive week. While it continued its rally through the top of the trading range, it did so on poorer quality than the previous week. The Technometer is now in a dangerously overbought condition and the lack of demand continues.

In addition, during this past week a new short-term trend channel was drawn from the bottom of the shakeout at point E through the first mild reaction at point G.

Almost immediately, the Wyckoff Wave weakened the new trend channel and failed on both Thursday and Friday to return to the up trend channel.

As the move to point G only lasted for two days, there has been no significant reaction since the shakeout.

Finally, the Wyckoff Wave is at the supply line of its long-term up trend channel. This would suggest its moving into an area where it should meet some supply.

Based on the above, it is probably not a question of whether the Wyckoff Wave will react, but when!

This is not a particularly important question for intermediate and long-term bulls. They have maintained their positions and have profited as the Wyckoff Wave rallied into new high ground.

When the reaction comes, it will probably signal a new buying opportunity where they can add to positions with cash they have accumulated since adjusting their portfolios in the area of point B.

On the other hand, the short-term traders, who look for profits on short-term rallies or reactions, need to identify turning points. This allows them to take positions at or near the short-term tops or bottoms.

Short-term traders have not had an easy two weeks. Even though the market looks like it will react, it continues to rally. The rally continues to be of poor quality and the overbought Technometer continues to suggest the market is going to react.

What will the market do in the coming week? Perhaps the answer can be found in the minor waves that appear on the intra-day chart.

Often, when we study the Wyckoff principles, the charts presents them in a clear and concise manner. That’s the good news. The bad news is that it is after-the-fact, when the principle in question has already proven itself, by its own market action.

It is important for the Wyckoff student to learn to identify potential Wyckoff principles as they are happening. They should then identify different scenarios that will either justify the principle or eliminate it from consideration.

The Wyckoff student who can master this skill has a higher probability of success in short-term trading.

One of these principles could be unfolding on an intra-day basis. It may provide clues as to when we can expect the long-awaited reaction to begin.

Last Monday, the Wyckoff Wave rallied to point X. It then began to move sideways and established an intra-day trading range. The tops were at points X and Y. The support was at point Z.

This trading range was presented to Pulse of the Market cap charting Service members, along with two different scenarios as how this might play out.

On Thursday, the Wyckoff Wave attempted to leave the trading range to the upside as it rallied to point A. Suddenly, for the first time in several days, supply came into the market. It drove the Wyckoff Wave back into the trading range at point B.

This intra-day action had all the characteristics of an upthrust. Was this the beginning of the reaction?

While an up thrust is not required to be tested, a test, especially intra-day, is not an
uncommon occurrence

The Wyckoff Wave then began to rally back to point A and, at the close on Thursday appeared to be putting in a successful secondary test of the up thrust.

If the secondary test was successful, we could expect a Sign of Weakness and the Wyckoff Wave would react through the bottom of the trading range on good price spread and volume. This would be scenario #1.
However, the test may not be successful. The Wyckoff Wave would then continue to rally and the short term trader would discard the up thrust scenario and look for new clues that would help identify the expected reaction.

New positions to the downside should not be taken until supply comes into the market signaling the intra-day Sign of Weakness. If that is anticipated and the market rallies, the short-term trader will have his or her stop orders executed and experience a loss of capital.

On Friday, the Wyckoff Wave continued to test the high at point A. It did so on relatively low price spread and volume. Friday’s market action was one of the weakest in several days and suggests a successful test of the upthrust.

However, that may not be the case. At point D the Wyckoff Wave is actually 3 points higher than the possible upthrust at point A. While the test still may be successful, it will now be of poor quality and probably needs to be tested again.

This is why short-term positions should not be taken until supply comes into the market that confirms the suspected Wyckoff principle.

Will that supply come into the market on Monday? Will the Wyckoff Wave successfully test the upthrust and begin a Sign of Weakness?

Predicting is guessing. The scenarios are in place. The action has been decided. It is now a matter of letting the Wyckoff Wave tell us what is going to happen next.

Will this be the major clue that allows short-term traders to make good trade to the downside, or will the Wyckoff Wave continue to advance and the upthrust scenario will not apply and be removed from the chart.

Pulse of the Market Charting Service members should get their answer early next week.