The stock market, as measured by the Wyckoff Wave, put in one of its strongest years in recent history. In 2013, the Wyckoff Wave gained over 30% and put substantial profits into the hands of intermediate and long-term investors.
Will this trend continue, or will the Wyckoff Wave react and disappoint bullish investors?
In an attempt to answer that question, let’s begin with the trends of the market. Presently, the intra-day, short term, intermediate term and long term trends of the market are all up.
The short-term trend is shown, in green, on the daily vertical line chart. The intermediate term trend is shown in blue on the same chart. The long term trend of the market is shown, in orange, on the weekly chart.
The Wyckoff Wave is in an overbought position relative to its long term up trend. It is at the supply line of its intermediate term up trend channel.
While these indicate relative strength, they also suggest that some sort of short term correction may be in order.
Notice the short term up trend channel. Two days after Christmas, the Wyckoff Wave had rallied to its yearly high at point J. While the holiday season certainly reduced trading volume, the rally was still not of good quality and the Wyckoff Wave was vulnerable to new supply appearing after the holiday season.
On Thursday and Friday that supply began to appear. While it was not overwhelming, or sustained, it did indicate that the Wyckoff Wave had a reasonable chance to return to both the intermediate and long term up trend channels.
It is also important to notice that if point J was the top of the move from point I, the Wyckoff Wave failed to reach the supply line of its new short term up trend channel. This, in itself, is an indication of weakness.
Even if the Wyckoff Wave reacts back into its intermediate and long-term up trend channel, those trends are still strongly up. In addition, there no short term count to the downside on the 100 Point & Figure chart that would indicate a deep reaction. So far, it simply appears the market may be headed for a fairly minor, short-term correction.
This would also be an opportunity for bullish traders to take new positions or add to existing ones.
On a longer-term basis, the prospects for 2014 appear to be quite bullish. The attached 100 Point & Figure chart shows a very long period of accumulation that began in April, 2012 (marked as point F) and extended to a Last Point of Support in January 2013 (marked as point M).
There is also a second possible Last Point of Support at point U. This would add an additional 2,200 points to the count.
The accumulation period is broken into 4 phases. These are marked on the bottom of the chart. The Wyckoff Wave has already reached the objectives set by phases 1 and 2. It has also passed through the 2008 highs that preceded the bear market.
The phase 3 objective is between 44,500 & 45,600. This is also the maximum objective of a smaller period of accumulation that began in 2011.
If, in 2014, the Wyckoff Wave reaches the maximum objectives of between 49,200 & 50,300, it will gain an additional 25%. Given that we have surpassed the old 2008 highs and are not seeing a large amount of supply come into the market, there is a better than average possibility that this can be achieved.
The lack of supply, at a place where it is expected to appear, is an extremely bullish sign.
The short term reaction scenario may be the last opportunity for investors to take new positions before the last leg of this wonderful six year bull market begins.