Yesterday, I was happily mowing the lawn when a stock broker friend pulled into my driveway. He wanted to know what I thought about last week’s stock market, especially the big rally on Thursday.
“I knew the Fed’s announcement would result in a big move”, he said. Now I can start investing some of my clients money in the market”.
I didn’t have the heart to tell him that what we were seeing was simply a result of the news taking the market to where it was going to go all along.
In fact, subscribers to my daily Pulse of the Market report were advised to take long positions several days before Thursday’s rally, just before the Wyckoff Wave put in an important Last Point of Support (LPS).
I would suggest that it was not the news but the wonderful long, slow reaction to that LPS (point W on the first chart page) that signaled the strong advance.
While my friend was finally trying to take long positions, attentive Wyckoff students were already counting their profits.
In addition, this is probably the absolute wrong time to enter the market to the upside.
Again, Wyckoff students know that once the market has penetrated the resistance (jumped the creek), there will probably be a backup to the resistance (now support).
This backup to the creek has the potential to become a second important Last Point of Support and, more importantly, another excellent entry point to the upside.
We have been in a long, sideways trading range for many months and now it appears we are entering a new phase of the bull market.
This wonderful example is another reason why Wyckoff students are more successful than other market investors or traders.
They have learned how to enter the market just before a major turn and take profits and exit the market before the move ends.
While last week’s market action more than validated the Wyckoff strategies and techniques, the Wyckoff Wave has, since the end of the 2008 – 2009 bear market, been right on the money identifying market trends and turning points.
Unlike the S&P 500, which actually saw the long term up trend channel weakened and broken, the Wyckoff Wave has called the bull market from the very beginning. This is shown on the weekly chart that is found on page 2 of the attached charts.
Look how the Wyckoff Wave has stayed within the long-term trend of the market. Every time the market left the trend to the upside, there was some distribution and a reaction. When it left the trend to the down side, there was accumulation and a rally.
This weekly chart clearly shows the myriad of opportunities that were taken advantage of by Wyckoff students who use the Wyckoff Wave as their market indicator.
As I was preparing this article, I went back and looked at the one area of this years re-accumulation period that has always bothered me. That was the reaction in late May and early June from points I to L on the daily chart.
The chart on page 3 is a daily chart of the Wyckoff Wave that ends at point L. All the action since then has been covered up.
It appeared that the Wyckoff Wave may have sprung the trading range at point J and rallied to point K. Then it collapsed and reacted down to point L. Was this a poor test of the spring at point J? Or, did the Wyckoff Wave react through the support at the bottom of the range (fall through the ice)? Was the rally to point K a Last Point of Supply (rally back to the ice) and was the market collapsing as it reacted to point L?
If we only look at the daily chart, the future doesn’t look terrific. Sometimes, we need to take a longer range view of the market so we can really see what it is telling us.
The answer was not on the daily chart, but on the weekly chart. Please turn to the last page on the attached charts. This is a weekly chart of the Wyckoff Wave. When I marked up my weekly charts, I have a tendency to use different letters so point X on the weekly chart is the same as point L on the daily chart.
Instead of a major collapse that could have been concluded from an analysis of the Wyckoff Wave daily chart, the weekly chart simply shows a reaction to the long term support line. The week marked point X was an intra-day failure to the down side. The Wyckoff Wave moved into an oversold position and rallied strongly. This was confirmed by a successful test at point Z.
If we look at the weekly chart, we will see that the reaction through the support line at the bottom of the trading range was most probably, one large shakeout. The rally was to point Y and the test of the shakeout at point Z.
The most important part of this was that the Wyckoff Wave respected its long term up trend channel and continued its bullish indications.
This little exercise reminded me that sometimes we need to step back and take a longer view of the market and particularly the Wyckoff Wave. Getting caught up in the day to day and even hour to hour movements in the market can sometimes cause us to miss the larger picture.