Technical Analysis of Stock Trends, The Wyckoff Wave – Week in Review February 19, 2016

Click here to view the Wyckoff Wave Daily and Intra-day Charts

Are We Backing Up To The Creek?

This past Wednesday the Wyckoff Wave rallied through the top of the mini trading range to point N, on the daily chart.

Friday saw the Wyckoff Wave experience an intra-day failure to the downside. The morning saw a reaction back to the top of the trading range. The afternoons saw a rally and a strong close. While Friday’s price spread was wider than that on Thursday, the volume was reduced. This suggests a lack of demand.

A quick review of the daily vertical line chart suggests a successful backup to the creek, for a Last Point of Support. Did Friday’s market action signal the beginning of a definitive move to the upside?

If that is the case, the rally from point M to Wednesdays high (point N) was a Sign of Strength.

On  the day marked point M, after a wide gap opening to the downside,  the Wyckoff Wave continued its reaction and tested the support at the bottom of the mini trading range. The demand appeared and the Wyckoff Wave rallied off that support.

The next day, the Wyckoff Wave continued to rally, but both price spread and volume were reduced. This indicated a lack of demand. That lack of demand continued on the following day, as the Wyckoff Wave approached the top of the mini trading range.

On the day marked point N, the Wyckoff Wave moved through the top of the range, but did so on reduced price spread and increased volume. This suggested the presence of some supply.

A Sign of Strength is just that. Demand is expected to be present and the rally should be on good price spread and strong volume. While, in just four trading days, the Wyckoff Wave rallied from point M to point N, there were not internal indications that strong demand was present.

At point N, the Technometer was in a slightly overbought condition and there were several negative divergences with the Optimism – Pessimism Index. This is not a great way to start a definitive move to the upside.

On the surface, Thursday’s and Friday’s market action appeared to be commensurate with a successful reaction to a Last Point of Support. But was it? Some clues may come from the Wyckoff Wave’s intra-day chart.

Please note that point E on the intra-day chart is the same as point M on the daily chart. Also, point M on the intra-day chart equals point N on the daily chart.

As you can see, after moving through the intra-day highs at points B and Z, which are just below the top of the mini trading range, with the exception of one intra-day up wave, price spread narrowed as demand was withdrawn.

However, supply did not come into the market. The Wyckoff Wave reacted to point N on reduced price spread and volume. Now, this was a great place for demand to come in to the market. Although it did, the demand only lasted for one intra-day wave. That was the rally to point O.

Then the Wyckoff Wave continued its reaction down to point P. While some supply was present, it was not dominant and did not take over the market. At point P, the Wyckoff Wave was testing the top of the mini trading range that is marked on the daily chart. This was Friday’s low. This was also the point that the backup should have been completed and strong demand should have come into the market.

Instead the Wyckoff Wave put in a poor quality rally to point Q.

Back to the daily chart. At Friday’s close, the Wyckoff Wave’s Technometer reading was 52.41. That is a clearly overbought condition. In addition, the O – P Index was in a negative divergence with the Wyckoff Wave when compared points D, B, Z and X. These form the resistance points at the top of the more important trading range, that began at point Q. A tremendous amount of effort, as shown by the O – P Index was pushing the Wyckoff Wave up. This effort has not been answered by the results, as shown by the Wyckoff Wave. This is not a positive indication and does not fit with a Sign of Strength scenario.

The Wyckoff Wave’s market action, beginning at point M, it is not conducive with a Sign of Strength and a jump across the creek.

While one should never say never, the confirmation that Friday was a Last Point of Support and that the Wyckoff Wave will continue to rally as a fairly low probability of success.

The answers should arrive next week, but sometimes things don’t always look like, what they look like. May Yogi Berra rest in peace.