This week the stock market, as measured by the Wyckoff Wave, put in a strong rally to the upside. This post takes a look at that rally from both intra-day (short-term traders) and daily (intermediate and long-term investors) perspectives. While each looks at the market differently, there are good indications that they will end up in the same place.
Let’s first look at the intra-day chart of the Wyckoff Wave. Last Monday, the Wave had an intra-day Selling Climax at point I on the intraday chart. There was an automatic rally to point J and a successful test at point K. The Wyckoff Wave appeared to settle into a trading range and short-term investors could wait for ending action before considering new positions.
However, it seems the Wyckoff Wave was in a big hurry and decided not to wait for the ending action formalities. It simply rallied through the top of the trading range (line drawn from point J) to point L, quickly reacted to point M and then moved strongly into new high ground as it rallied to point P.
This rally was an intra-day Sign of Strength. The question is, did the Sign of Strength end at point P, or is there more room to the upside?
Notice that from Wednesday through Friday, the price spread decreased. Remember, gap openings do not count in the price spread.
In addition, after the Wyckoff Wave reached point N and reacted, the subsequent rally to point P was short and brief. The supply that came into the market after point P was more significant than from point N.
This would suggest the Wyckoff Wave was ready to react back towards the top of the intra-day trading range, with an opportunity for an intra-day Last Point of Support. This could occur in the area of point J, but not below the line drawn from point L
Have we seen a significant intra-day move that will influence the overall market?
One big concern is the lack of a Spring. It would’ve been more bullish if point K had been spring and the reaction to point M had been a successful secondary test. Instead, the Wyckoff Wave simply moved into new high ground.
This increases the probability that a reaction could take the Wyckoff Wave through the back of the creek (line drawn from point L) into the intra-day trading range, where it will wait for new ending action.
Unfortunately, it was difficult for short-term traders to find new positions as there was no Spring or Secondary Test entry points.
How does the intra-day market action relate to the daily chart?
On the daily chart, the Wyckoff Wave completed its reaction to point K. It met support at the 41,000 level, which was an old support line drawn earlier in the trading range.
The reaction from point J was on good price spread and relatively high volume. This indicates the presence of supply. It is important to note that supply did not dry up at point K, but the Wyckoff Wave simply rallied. Therefore, point K was simply a stop of move within the trading range and carries no particular significance.
The Wyckoff Wave also rallied from an oversold position back into its short-term down trend channel. On Friday, it appears to have met expected resistance at the channel’s supply line.
The shortening of the price spread and testing the short-term supply line, suggests the Wyckoff Wave is prepared to react.
This supposition is strongly supported by an overbought Technometer and a negative divergence when the Optimism – Pessimism Index is compared to the Wyckoff Wave at points J and H.
While the Force Index is rallying, its moderate negative readings do not have a mitigating impact on the overbought Technometer.
Both the intra-day and daily charts suggest the Wyckoff Wave should put in some sort of a reaction during the Christmas week.
While this interests short-term traders who may look for new positions, intermediate and long-term traders can spend more time on holiday festivities than watching the market.
The intermediate and long-term trends of the market are solidly up. The Wyckoff Wave is simply moving sideways, in a 10 month trading range, waiting for ending action. While last week’s reaction brought a reduction in portfolios, this week more than made up for the disappointment.
While the Wyckoff Wave will probably react before it puts in a substantial rally, intermediate and long-term investors, who have purchased stocks that were stronger than the market, are seeing more profits on fluctuations to the upside than losses on those to the downside.
On behalf of all of us that Wyckoff Stock Market Institute.com, we send joyous holiday greetings to you and your family. May this time of the year give us the opportunity to reflect on the gifts we have been given, the friends we have made and, most especially, the loves of our lives.