Technical Analysis of Stock Trends, The Wyckoff Wave – Week in Review April 15, 2016

Click here to view the Wyckoff Wave Daily Chart.
Click here to view the 2nd Wyckoff Wave Daily Chart for April 15, 2016

Mixed Signals At The Top Of The Trading Range

This past week, the Wyckoff Wave gave us a bit of a surprise. Instead of successfully testing the recent highs at points T and R, it rallied through them and is at the very top of the trading range.

The Wyckoff Wave rallied past points D and B to point Z. Point Z was the highest resistance level in the developing trading range. The resistance line on the chart has been adjusted.

What does all this mean and what can the short term and long-term traders and investors expect?

The Wyckoff Wave has rallied from the bottom to the top of the trading range. During that rally there has been little supply and it certainly did not come into the market during the past couple of weeks. This past Thursday, the Wyckoff Wave attempted to move into new high ground and failed.

Could Thursday’s market action have been an upthrust? This would dramatically change the long standing accumulation scenario. Is it possible that what once was thought to be accumulation, could actually be distribution.

However, a look at Thursday’s market action, in more detail, suggests that wasn’t the case.

An upthrust is defined as having three characteristics.

  1. The shortening of price spread as the resistance is penetrated.
  2. An increase in volume.
  3. A poor close.

An upthrust is an attempt to rally into new high ground. The rally encounters strong supply and, after a brief supply and demand battle, there is a sharp reaction. The close is at or near the bottom of the day’s price spread. Every upthrust consists of strong supply coming into the stock or index.

On Thursday, the price spread was reduced and the volume was higher. However, the Wyckoff Wave closed in the middle of a narrower price spread. This suggested the strong supply, that would justify the upthrust scenario, did not come into the market.

That observation is confirmed on the attached intra-day chart. Thursday’s market action is between the two vertical lines, drawn in red.

From an intra-day perspective, Thursday was a rather boring day. While there was good supply on the first intra-day wave, the Wyckoff Wave rallied to point G on a lack of demand. This was where supply should have made an appearance.

Instead, the supply was rather light and certainly not sustained. This is not indicative of an upthrust. In fact, on Friday after a morning intra-day rally to point R, which was helped considerably by a gap opening, the Wyckoff Wave reacted on a lack of supply.

This strongly suggests that Thursday’s market action was not an upthrust.

The Wyckoff Wave also had an opportunity to rally through the top of the trading range into new high ground. So far, that hasn’t happened either.

If the Wave is going to continue to the upside, there is normally an earlier indications that demand was present. This past Tuesday, the Wyckoff Wave did rally on wider price spread and increased volume. Then demand withdrawn and the Wave stalled at the top of the range.

All this suggests the Wyckoff Wave will probably react, test the lows at points U and S and then rally to test this past week’s highs. Then we could see that long awaited reaction back towards the bottom of the range.

This blog post has been primarily geared to short-term traders. Long term investors, should continue holding positions to the upside. If, I am wrong, and the Wyckoff Wave continues to rally through the top of the trading range, they can grin a lot and enjoy profits.

Full disclosure, I’ll be grinning right along with them. In addition, if the Wyckoff Wave reacts, there is an opportunity to add to intermediate and long-term positions at the bottom of the reaction.

It looks like boring will probably continue. That’s not always a bad thing.

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