This week, the Wyckoff Wave appears to have successfully tested the high at point D. Last Friday’s rally to point F was unable to penetrate the high and the Wyckoff Wave spent most of the week reacting.
So far, the reaction is not been particularly significant, but the Wyckoff Wave has returned to its short-term up trend channel. If this reaction is on relatively reduced price spread and volume and, if it does not fall back into the trading range, we will see an extremely important Last Point of Support.
This would be significant because, believe it or not, there has been no ending action in this long sideways movement that began last May at point J.
Ending action comes in several forms. It can be a spring, followed by its secondary test. It can be a Last Point of Support within the trading range. This would be preceded by a Sign of Strength, which is also in the trading range. Finally, it can be a major Last Point of Support. This would be preceded by a Sign of Strength that penetrates the resistance at the top of the trading range. This is also called the Jump Across the Creek.
All three of these ending actions can appear in sequence (Spring, Last Point of Support within the trading range and Last Point of Support after a Creek jump). However, all three are not required to be present as a stock begins its Mark up phase. There could be a Spring and one of the two Last Points of Support or there could simply be a single Last Point of Support.
In this market there has not been a Spring or a Sign of Strength with a Last Point of Support within the trading range. After several months of a long drawn out sideways movement, we have yet to see any ending action.
Let’s quickly review the trading range.
As previously discussed, the area between points J and P was probably some distribution. Then the Wyckoff Wave reacted to point Q and we saw some climactic action.
This helped define the trading range. The bottom of the range (support) was at 35,150. The top of the range (resistance) was at 37,600.
After testing the top of the range at point U, the Wyckoff Wave reacted to point Z. The day before the low, the Wyckoff Wave reacted on increased price spread and volume. It certainly appeared that it was going to spring the trading range and was the ending action the bulls were waiting for.
Unfortunately, the Wyckoff Wave simply rallied off the bottom of the trading range. This meant that since there was no ending action, the sideways movement continued.
The Wyckoff Wave then rallied to point A. Once again, it suggested an event that never happened. As the Wyckoff Wave approached the top of the trading range (line drawn from point J through point U) it appeared to be running out of demand. Then, the Wyckoff Wave jumped the Creek as it moved to point A.
This appeared to be a classic Creek jump. There was wide price spread and noticeably increased volume. Would this penetration of the resistance be followed by a Last Point of Support?
The answer came quickly and it was a resounding no. The next day, instead of following through to the upside, the Wyckoff Wave ran out of demand. This was followed by a sharp reaction back into the trading range and the Wyckoff Wave reacted to point B.
This reaction was not a Last Point of Support as it reacted through the back edge of the Creek (line drawn from point U through W and W-1). In addition it failed to hold above the halfway point of the rally from point Z to point A.
Once again there was no ending action and the Wyckoff Wave was back in the trading range.
The failure to jump the Creek at point A caused an adjustment in the trading range. Because the Wyckoff Wave met resistance at point A, it had to be included as a trading range top. This is why the blue line from point U was extended up to point A and then across to the right-hand side of the chart.
After seeing support at point B, the Wyckoff Wave began a very interesting rally. It is interesting in the fact that while the price spread and volume has been relatively unimpressive, the Wave just keeps advancing.
When the Wyckoff Wave penetrated the top of the trading range, it did not do so on the expected wide price and increased volume. Instead it simply moved through the top of the range and kept on going. While at now has to be considered a Creek jump, it was not accomplished in the traditional manner.
As we know, ending action is not a jump across Creek, but the Last Point of Support that follows. So far, the Wyckoff Wave has not reacted and a Last Point of Support appears only in the dreams of bullish investors.
However, if it does happen, this will be the first ending action in this trading range. That is why it is so significant.
There are some indications the Wyckoff Wave may be getting ready to react. The first is the, so far, successful test of point D. We are also seeing a subtle change in character.
For the first time since point B, the Wyckoff Wave reacted for more than one day on the way to point B. Then, again for the first time since point B, it put in a lower top at point F.
The Technometer’s overbought condition and the Optimism – Pessimism Index’s negative short-term divergence with the Wyckoff Wave help support this scenario.
Will the Wyckoff Wave react and will we see a Last Point of Support, or will the Wave fine a way to keep on rallying? That question will be answered next week and hopefully, will bring more clarity to a difficult market.