This week, the Wyckoff Wave had a very interesting three days. After moving towards the top of the trading range in a rather unimpressive fashion, Wednesday’s market action changed everything.
Suddenly, the Wyckoff Wave rallied strongly and moved through the resistance (Creek) at the top of the trading range. It did so on wide spread and noticeably increased volume. These are the symbols of a classic “Jump Across the Creek”.
While many would attribute that move to comments made by the Federal Reserve, that news conference was held at 2 PM Eastern Time. A review of the intra-day chart shows the move up to point W began at 12:40 PM Eastern Time.
Stock Market Institute legend Robert Evans often said, “the news is usually a way of getting the market to a place where it was going to go anyways, it just gets there a bit faster”. That appears to be what happened on Wednesday.
It is also important to notice that after Wednesday’s strong move to the upside, the Wyckoff Wave was at the support line of the intermediate-term up trend channel. The Wyckoff Wave weakened that up trend channel in early August and the intermediate trend of the market is neutral.
Now that the Wyckoff Wave is attempting to return to that up trend channel, this is a normal spot for some resistance to occur.
While the bulls would’ve loved to see some follow through and a little more space for the expected back up to take place, that wasn’t going to happen.
On Thursday, the Wyckoff Wave attempted to continue the rally, but was unable to do so. Instead, the reduced price spread and volume suggested demand was being withdrawn and the Wyckoff Wave was vulnerable to react.
The Technometer had moved into a very overbought condition, which signaled that it would be difficult for the rally to continue.
Thursday’s daily Pulse of the Market Report suggested that short term bears consider positions to the downside.
The bears were rewarded on Friday as the Wyckoff Wave reacted strongly on increased price spread and even higher volume than was seen on Wednesday. It is now back in the Creek area (the near edge of the support/resistance area we call the Creek is a line drawn from point B. The far edge is the line drawn from point B to U and W) and dangerously close to the far edge of the Creek.
This puts the Wyckoff Wave right back into the area of Tuesday’s closing price. Were the bulls premature in calling this move a “Jump Across the Creek”, or did we see a major Upthrust and the beginning of a significant move to the downside?
Let’s explore the terms. A Creek Jump is defined as a strong rally through the resistance at the top of the trading range. The rally should be on wide spread and noticeably increased volume. It should end with a strong close. A Creek Jumped definitively shows demand was present.
An Upthrust is defined as the penetration of the resistance at the top of a trading range. However, while the volume is increased, price spread is decreased and the closing price is in the lower part of the day’s price spread. An Upthrust definitively shows that supply was present.
With that in mind, let’s revisit last week’s market action. While it could be argued that the market action of the past three days can be combined to form an upthrust, the price spread is much wider than is seen in a classic upthrust situation. The price spread on both Wednesday and Friday was extremely wide.
In addition, there is an extremely interesting development in the Optimism – Pessimism Index. In one day it moved into a positive inharmonious action relationship with the Wyckoff Wave, when compared with point Z at the bottom of the trading range.
While the Wyckoff Wave is substantially higher than it was at point Z, the
Optimism – Pessimism Index is only slightly higher. For this important bullish indication to appear so soon, in a reaction, is a very positive sign.
Finally, a look at the intra-day chart shows that, while supply was certainly present on Friday, the length of the intra-day waves was reduced as the day progressed. While this needs to be confirmed, it is a small and very early indication that demand is lurking.
The last intra-day wave of the day only lasted 15 min., but made little progress to the downside on extremely high volume. While volume is abnormally high at both the beginning and the end of every trading day, this may be another indication that some demand is present.
While it is difficult to justify the upthrust scenario, it is quite possible that the Wyckoff Wave was not ready to rally strongly and is simply falling back into the trading range. Just because there is a Creek Jump does not mean a Last Point of Support is going to happen and the mark up phase will follow. There is no reason to discard the scenario that has the Wyckoff Wave returning to the bottom of the trading range for possible ending action. The ending action would be in the form of a spring. The Wyckoff Wave could also, like it did at point Z, simply rally off the support and continue its sideways movement.
If the Wyckoff Wave continues to react it will be important to watch, not only the price spread and volume, but the Optimism – Pessimism Index and the Technometer.
If it falls through the present far edge of the Creek, it may be helpful to look at the price spread and volume as the Wyckoff Wave approaches the halfway point of the rally from point Z to point A. It is interesting to note that that area is just above point W – 1, which may be a more important support area.
These developments will be monitored and reported in the daily Pulse of the Market letter sent to subscribers of the Wyckoff Charting Service.
It would appear that we had a “Jump Across the Creek” and not an upthrust. This will be confirmed by how the market reacts and what signals are sent by these important Wyckoff indicators.
After a long sideways movement, the Wyckoff Wave may be getting ready to do something and we could be approaching a major trading opportunity. Stay tuned.