Is The Technometer Forecasting A Change In Direction?
The Wyckoff Wave spent most of last week reacting to test the short-term lows at point M and the support/resistance line drawn from point H. A successful test of these two important support areas would most probably signal the beginning of a new move to the upside.
The reaction down towards a Last Point of Support is usually accompanied by reduced price spread and volume. That was the case on Monday and Tuesday. However, Wednesday and Thursday brought increased price spread. This complicated the issue.
The narrower price spread and reduced volume returned on Friday. However, using only the vertical line chart, a reaction to a Last Point of Support is not a foregone conclusion.
Fortunately, Wyckoff traders and investors have some additional tools. One of the most helpful is the Technometer. The is a unique volume-based index that has an uncanny ability to determine changes of direction in both the overall market and its individual stocks. It sends definite signals as to when an index or stock is either overbought and ready to react, or oversold and ready to rally.
Technometer readings of 50 or higher indicate an overbought condition. The oversold condition begins at 42, but is not definitively oversold until the Technometer reaches 38.
A review of the Wyckoff Wave’s Technometer shows that on Friday it was at 33.61. This is an extremely oversold condition. The Technometer is indicating that the Wyckoff Wave is prepared to rally.
It is also important to analyze Technometer readings and compare them to the Wyckoff Wave. For example, if the Technometer becomes more oversold than it was at an earlier low and the Wyckoff Wave remains higher, this is a very positive indication.
On Friday, the Wyckoff Wave closed at 36,539. The Technometer was at 33.61. At point M, the Wyckoff Wave closed at 36, 233. The Technometer was at 41.08.
The Wyckoff Wave is 306 points higher than it was at point M. The Technometer is 7.47 points lower. According to the Technometer, the market is prepared to rally.
A lower Technometer reading, at a higher level on the Wyckoff Wave, indicates that the supply that is entering the market is fairly easily being taken in by traders and investors who are anticipating a rally.
This week, the Technometer has also been supported by readings from the Optimism – Pessimism Index. It is presently in a short term positive divergence with the Wyckoff Wave when compared with point M. The O – P Index is at 67,568. At point M, DOB reading was 67,763. Friday’s close was 195 points lower than at point M. Conversely, the Wyckoff Wave is 306 points higher than it was at point M. This positive divergence also suggests the Wyckoff Wave should rally and move back into harmony with the O – P Index.
A successful stock market is an orderly stock market. Specialists, who buy and sell for their own account, are one way the exchanges maintain reasonable order and structure. The Technometer has an uncanny way of identifying this and realizing when changes of direction are looming on the horizon.
The Technometer is saying the market is ready to rally. Let’s see how valuable this Wyckoff tool really is.