Watch and Wait

We are in a watch and wait situation to see if there is a successful test of the trading range bottom.

There are no opportunities to the downside

Short-term bulls should continue to consider new opportunities to the upside. However, they should wait for a successful test of the lows before new positions can be taken.

Intermediate and long-term bulls should maintain existing positions.

There are no intermediate or long term opportunities to the downside.

Intra-day: Neutral

Short Term: Down

Intermediate Term: Down, but weakened and in an oversold position.

Long Term:  Neutral

The stock market, as measured by the Wyckoff Wave, traded lower on increased volume. It closed in the lower quarter of a narrower price spread, in an overbought condition relative to the Technometer. The price spread and volume suggest the presence of some demand.

A review of the intra-day waves indicates that today featured a gradual reduction of supply.

After a wide gap opening to the downside, supply continued and spent the morning driving the Wyckoff Wave down to point F.

There supply began to dry up. For the last three hours and 45 min. of the trading day, the Wyckoff Wave made little progress to the downside. Some demand did return during the last 35 min.

The Wyckoff Wave put in a successful test of point M and is reacting back to test the lows at points X and H.

Despite supply being present for most of the morning, a review of the intra-day chart indicates the down waves were narrowing and some demand was returning.

While the Wyckoff Wave should continue its move to the downside, early indications suggest the test of the lows will be successful.

The Optimism – Pessimism Index rallied and remains in its upward trend channel. It is in a short-term negative divergence with the Wyckoff Wave, when compared with point H. Today’s reaction makes that divergence more significant.

The Force Index rallied and continues to produce moderately negative readings. There is no mitigating impact on the overbought Technometer.

Tomorrow, the Technometer will open in a slightly overbought condition.

Today, the Wyckoff Wave began a reaction off point J. It is beginning an attempt to put in a successful secondary test of point F.

Today’s price spread and volume become the benchmark for comparing the next few days market activity. If price spread and volume is decreased, the substantially in proves the probability of a successful test. Increased price spread and volume put the test scenario in jeopardy.

Today’s slightly decreased price spread was a reasonable start.

The overbought Technometer and negative O – P Index divergence suggest the reaction will continue. The strengthening Force Index suggests investor sentiment is becoming a bit more positive.

The success or failure of the test should come before week’s end. If the Wyckoff Wave does not react back into the short-term down trend channel, it will break the channel and change the short-term trend to neutral. This would be a significant positive for the beginning of a rally within the trading range scenario.

So far, it appears a successful test of the bottom of the trading range scenario has a good probability of success.