The Raging Bull

This past week, the Wyckoff Wave continued its strong rally on increased price spread, and slightly reduced, but relatively strong volume. It also is in an overbought position relative to both its short and intermediate term up trend channels.

Since the middle of November, 2012, when the Wyckoff Wave was at point D, it has rallied by 5826 points or 20%. It has accomplished that without one significant reaction. It is certainly a show of strength when a market reacts sideways rather than down.

These sideways reactions show that although a great deal of overhanging supply is still coming into the market, it is readily being absorbed by strong hands.

Now, in addition to being overbought on both a short and intermediate term basis, the Wyckoff Wave is now approaching the supply line of its long-term uptrend channel. This suggests that some sort of a reaction, or another sideways move, may be just around the corner.

The Wyckoff tools can be helpful in these determinations. I have drawn both the long and intermediate term trend channels on the chart of the Optimism – Pessimism Index. While the Wyckoff Wave is in harmony with the O – P Index, it has not been able to stay in the long term up trend channel. This is primarily a result of the long trading range that began in March 2012 and is marked by point U.

For quite some time the Wave has been in an overbought position relative to the intermediate-term uptrend channel and it is moving back towards the long-term channel.

It is important to note that in a rally, the Optimism – Pessimism Index almost always leads and is stronger than the Wyckoff Wave. There is nothing in the Optimism – Pessimism Index that suggests any kind of a lengthy reaction.

The Technometer is in an extremely dangerously overbought condition. This would suggest a strong reaction is imminent. However, the Technometer works in conjunction with the Force Index. A Force Index that is producing mildly negative or positive numbers has a mitigating impact on the Technometer’s overbought condition. At Friday’s close, the Force Index was at its highest level in 3 1/2 years and producing a reading of +671. Despite the overbought Technometer, it is difficult to anticipate any kind of a strong reaction.

Finally, there is no cause in the 100 Point & Figure chart that would indicate a strong reaction.

This does not mean the Wyckoff Wave will not react. It may well encounter supply as it tries to penetrate the supply line of the long-term uptrend channel. A minor reaction would keep the Wyckoff Wave in its up trend channel and return it to its short and intermediate term channels.

Unlike the Dow Jones Industrial average and The S&P 500, the Wyckoff Wave is not in new high ground. There is still plenty of overhanging supply from way back in the 2007 – 2008 distribution area that can be dumped on the market. This is what has caused both sideways movements and will continue to do so until the Wyckoff Wave is able to advance another 3, 000 points and take out the 2007 highs.

While the Wyckoff tools (O – P Index, Technometer & Force Index) and continue to be positive, they will probably be the first to let us know when this wonderful bull market is running into trouble.

Until then, intermediate and long-term investors are happily holding onto their positions and taking nice profits.

However, no one should be sanguine in thinking the advance will continue forever. The Wyckoff Wave in the Wyckoff tools should be watched closely for negative signs so those hard-earned profits made during the last five years can be protected.

Rotation Is Helping the Market

Since last November, the Wyckoff Wave has been in an intermediate up trend channel. The advance has been somewhat unique, in that there have been no significant reactions. The Wyckoff Wave would advance to the uptrend channel’s supply line. Then it would move sideways towards the supply line on narrow price spread and moderate volume. This process has been completed three times and we appear to be in the middle of the fourth occurrence.

A sideways move after a rally is a signal that the market or individual stock is strong. There is not enough supply to force a reaction. There is also plenty of demand available that is happily taking in this overhanging supply.

This week, we have seen the Wyckoff Wave rally again and start to begin a sideways move. We are also seeing strength in the Wyckoff tools. The Optimism – Pessimism Index is stronger than the Wyckoff Wave. Even though the Technometer is in an extremely dangerously overbought condition, this danger signal is mitigated by a very positive Force Index.

In addition to being in an intermediate and long term up trend channel, the Wyckoff Wave has also established a short term up trend channel. From every perspective the market is relatively strong.

What we are seeing is a bit like accumulation, where the operators move the stock up slightly to gauge the amount of overhanging supply. They then let the stock fall back towards the bottom of the trading range. The process is continued until the supply is taken in and the stock (market) is ready to advance.

This is why we are seeing a nice advance, but a dull market. I would suggest the stepping stone advances we are seeing are a result of rotation. One group of stocks accumulate and then advance, while others remain weaker than the market. When it is their turn to advance, the rotation into new strength results in a positive market move.

Caterpillar Tractor (CAT), a Wyckoff Group Leadership Stock, is an excellent example of rotation.  Caterpillar is in the Industrial Equipment Group. Each Wyckoff Wave stock is a group leadership stock and by watching how they move, the Wyckoff trader can identify investment opportunities within that group.

The 2nd attached line chart, compares Caterpillar with the Wyckoff Wave. From February through the middle of April, Caterpillar has been substantially weaker than the Wave. Then there was a change in character. On a short-term basis, Caterpillar is in harmony with the Wyckoff Wave. This suggests we may be seeing some rotation and Caterpillar, and the other stocks within the Industrial Equipment Group may be poised to advance.

First, a little history. Last June, Caterpillar began to complete a reaction with Preliminary Supported at point F. This was followed by a Selling Climax at point F. CAT then began a trading range that ended with a spring at point P. If you refer back to the relative strength comparison chart with the Wyckoff Wave, you will see that Caterpillar is stronger than the Wyckoff Wave. This is an excellent buying opportunity.

The spring was followed by a Secondary Test and a second buying opportunity. The Sign of Strength was the rally to point I. There was a last point of support at point J and Caterpillar rally to point K.

Caterpillar then Jumped the Creek and rallied to point K. On the surface everything looks terrific. Those who bought at point P, H and J had nice profits. However, trouble was on the horizon. Notice how after point I, even though CAT put in a good Last Point of Support at point J, it did weaken the uptrend channel. More importantly, Caterpillar never again reached the supply line of the uptrend channel. The short term up trend channel was broken at point K. This was a logical place to take profits and close trades.

That Caterpillar was in trouble was confirmed by an overbought Technometer and a negative divergence with the O – P Index. This also gave the short-term bears an opportunity to enter the market to the downside.

Caterpillar then experienced a change in character. It fell back into the trading range and we now need to wait for new ending action. It also became weaker than the Wyckoff Wave.

The relative strength changed again in the middle of April when CAT , once again penetrated the trading range at point L. Look at the volume that came in on the rally off the spring. Caterpillar then rallied to point M and reacted for a successful test of the spring at point N. This was a more powerful Spring that the earlier one at point P.

Caterpillar was back in harmony with the Wyckoff Wave and had established a short-term up trend channel. CAT also appears to have put in a a Sign of Strength on the rally to point O. The halfway point of the rally from point L to O is $85.00. It will be interesting to watch Caterpillar as it reacts back to test the supply line of the short term up trend channel.

Caterpillar is a classic example of how these important Group Leadership Stocks can point us in the direction of stocks that are ready to move. In this example, CAT did just that at point P and may be doing it again at point L. How many other stocks in the Industrial Equipment Group are experiencing the same potential to advance?

Creek Jump or Upthrust?

For the first three days of the trading week it appeared that the Wyckoff Wave was coming to the end of a minor trading range and getting ready to react. Relative volume was decreasing. The effort of the Optimism – Pessimism Index was exceeding the results shown by the Wyckoff Wave. This created a short-term negative divergence. The Technometer was in an overbought condition and the Force Index was producing negative numbers. Conditions seemed right for a reaction.

On Wednesday, it appeared that reaction was beginning. The Wyckoff Wave opened to the downside and closed just above the day’s low. The day’s volume increased. Although the price spread was slightly narrower, it appeared supply was finally taking charge and the Wyckoff Wave would react to test, not only the support line of the intermediate-term uptrend channel, but the edge of the major resistance line.

The 100 Point & Figure chart supported a reaction and suggested the Wyckoff Wave would hold above the resistance for a successful Last Point of Support.

On Thursday, the Wyckoff Wave was unable to follow through to the downside. Instead it rallied on increased price spread and reduced volume. A review of the intra-day waves suggested that the early demand that propelled the Wyckoff Wave higher was withdrawn and some supply was coming into the market. This, coupled with the Technometer’s continued overbought condition and the negative divergence with the O – P Index, still indicated the reaction scenario was still the most probable.

Friday was not a great day for the short term bears. Those of us who expected a reaction, instead saw a wide gap opening to the upside and good demand. Most importantly, the Wyckoff Wave jumped the Creek of the resistance line begun at point X and drawn through points Z and B. Were we seeing a jump across the Creek and is the Wyckoff Wave ready to begin a new mark up phase?

Before answering that question, let’s review Friday’s market action. As you can see on the attached chart, the Wyckoff Wave rallied to the supply line of the intermediate-term uptrend channel, but then encountered some supply and closed below the day’s high.

The price spread was narrower than on Thursday and the volume was higher. This would indicate the presence of some supply.  However, the Force Index, which had moved into positive territory on Thursday, continued to produce positive numbers on Friday. This has a mitigating factor on the Technometer’s overbought condition.

A Creek jump is defined by a wider price spread and increased volume. While Friday’s volume was increased it was still relatively low and the price spread was not particularly impressive. In addition, almost all of the days price movement was on one intra-day wave that took place right after the gap opening. After that wave, there was no follow through to the upside.

That being said, the Wave’s intra-day sideways movement could simply be absorption as the Wyckoff Wave takes in any remaining supply as it jumps the Creek.

On the other hand, is that supply the beginning of an upthrust that will drive the Wyckoff Wave down and finally begin the reaction?

An upthrust is defined by a relatively narrower price spread, increased volume and a poor close. Like a jump across the Creek, an upthrust can take place over more than one day.

The upthrust scenario is supported by relatively low price spread and relatively decreased volume. While the negative divergence with the O – P Index has been eliminated (a positive for the Creek jump scenario), the Technometer continues in an overbought condition. Despite the positive Force Index, it will be hard for the Wyckoff Wave to rally through the intermediate-term uptrend channel in an overbought condition.

Unfortunately for Wyckoff traders, Friday’s action was incomplete, in that it did not complete either a Creek jump or an upthrust. That conclusion will probably arrive on Monday.

Perhaps some clues can be found in the relative strength and weakness of the 12 individual Wyckoff Wave stocks, when compared to the Wyckoff Wave. On a short-term basis, 7 are weaker than the Wyckoff Wave, 3 are stronger and 2 are the same. This gives some ammunition to the upthrust scenario.

Since the poor quality rally to point B, market conditions have suggested a reaction would be in order. Friday’s market action was inconclusive and while my observations may look terrible next week, I still believe a reaction is in the very foreseeable future.
As an old cowboy once said, “you dance with who brung you”.

It is important to remember that the above commentary is a short term view of the market. The weekly chart of the Wyckoff Wave presents a longer-term perspective. It shows the Wyckoff Wave in the middle of its long-term uptrend channel. In addition, there are no intermediate or long term signals that would suggest any kind of a major reaction.

Backing Up To The Creek

This past week, the Wyckoff Wave rallied on both Monday and Tuesday. It then moved sideways in a small trading range for the remainder of the week. While this seems fairly uneventful, we are seeing a change in character that may provide some clues as to the market’s further direction.

These clues are found in how the Wyckoff Wave has penetrated resistance (Jumped the Creek) since the intermediate-term trading range began last November.

Before discussing the specifics, let’s review the Creek concept.

A Creek is the flow of supply across the top of a trading range. It is drawn using a freehand line that goes over the tops of rallies within a trading range.

When a Creek is “jumped”, it is a signal that demand has finally overcome supply. Instead of reacting back down into the trading range, the stock, or the market, has accumulated enough demand that it takes out the supply and moves into new high ground, relative to the trading range.

The Creek jump takes place where strong volume comes in on the vertical line chart. Without analyzing volume, it is impossible to identify when a Creek has been jumped (a resistance area has been penetrated).

Once a Creek has been jumped, in most cases there is a resting. This allows the stock to move back toward the Creek (resistance line) and take in any remaining supply.

There are often more than one branches of the Creek. These are major branches and later branches. They appear every time a stock encounters supply and begins to move sideways.

It is also important to understand that Creeks do not need Springs. A Spring is a backing up from the previous resistance, penetrating the support line and springing up and jumping a Creek. In many cases, enough supply has been taken in that the spring is not required and a stock simply either moved sideways or reacts down to the support line and then rallies to jump the Creek.

The reaction back towards the Creek for a Last Point of Support become successful when one of two things happen:

1. Supply dries up. This is shown by relatively reduced price spread and volume (especially volume).

2. Strong demand simply appears. The appearance of demand is accompanied by strong volume. Often this is found in the intra-day failure to the downside.

It is extremely important to understand the concept of relative volume. The reduced volume required on a reaction to a Last Point of Support only needs to be less than the volume on the rally across the Creek.

With all that in mind, let’s review the intermediate-term uptrend channel, which starts at point G. The Wyckoff Wave rallied off point G and saw resistance at points H, J and L. It then reacted back to point M on relatively reduced spread and volume. Volume was high the day before point M, but that was on strong demand coming into the market.

We then saw strong volume at point M. At point 1, the Wyckoff Wave jumped its first Creek on the rally to point N.  It then moved sideways, on relatively reduced spread and volume. Then, at point 2 the Wave jumped the second Creek (resistance line drawn from point N along the top of the minor trading range.

There were two successful Creek jumps. These were followed by sideways reactions, which led the way to the next jump. The Wyckoff Wave was moving easily towards the old 2008 distribution area.

Then, in early March, we began to see a slight change in character. When the Wyckoff Wave moved into new high ground on the rally to point V, strong volume did not come into the market. Instead, even though the Wyckoff Wave moved higher to point X, it was done on relatively reduced price spread and volume. Apparently, demand was beginning to dry up.

The Wyckoff Wave rallied to point Z. Supply came in and drove the Wyckoff Wave back down to point A. I have adjusted the Creek to run through point Z.

The reaction to point A gave the Wyckoff Wave another chance to take a run and jump the Creek. Once again, it failed and the Wyckoff Wave fell back into the trading range. It then rallied back up towards the top of the Creek and is moving sideways.

Notice the volume. On the rally from point A to point B it was less than on the reaction from point B to point E. It has remained higher ever since, suggesting a fair amount of supply continues to be present.

This is a change in character. The Wyckoff Wave is in the old 2008 distribution area. Tt is either going to move through the resistance into new high ground, or it is going to react back down into the trading range and continue it sideways movement.

Does this change in character mean all hope is lost for the Bulls?

These observations are made on short-term changes within an intermediate term trend. This means that the results of this change in character, will be short-term as well. It would appear that we are getting ready for a more defined back up to a major Creek.

The attached 100 Point & Figure chart gives us a rough objective to the downside of between 33,500 & 33,200.  If that objective is reached, it would take the Wyckoff Wave back to a major resistance line, drawn from point X, that is marked by the blue up arrow.

This would make the move back to the resistance part of a much longer term view of the market and if it happens, would be a very positive event.

It is also important to note that, so far, the Wyckoff Wave has not reached the supply line of the intermediate-term uptrend channel. This would be the first time since the channel is formed, that this didn’t happen. Another change in character.

Finally, the Wyckoff Wave is in a clearly oversold condition on the Technometer and the negative numbers being produced by the Force Index will not mitigate the Technometer reading.

If the Wyckoff Wave reacts, and that is the most probable scenario, it will be important to continue to watch its relative volume. That will tell us if supply is really drying up and we are ready for that longer-term Last Point of Support.

Does The News Move Stocks?

A week ago Friday (the day after point B), the Wyckoff Wave put in a lack of demand day and appeared extremely vulnerable to a reaction. This past week it has reacted and is testing the support line ( G – M) of the intermediate-term up trend channel.

A short term count along the 34,800 line provides an objective area of between 34,000 and 33,700. This is above the most important resistance line drawn from point X and marked with a blue arrow.

On Monday of this week, the Wyckoff Wave reacted sharply to point C. The next day’s brief rally to point D, gave us the opportunity to draw a new short-term down trend channel.

While the Wyckoff Wave can always react back into the trading range, the most probable scenario continues to be that this reaction is leading to an important Last Point of Support.

On Friday the Wyckoff Wave moved into an oversold condition on the Technometer (although it will open on Monday in a neutral condition). It also is remaining in a strong position (close to the supply line and, so far, not testing the support line) in the short term down trend channel.

One indication that the Wyckoff Wave will continue to move lower is in the relative volume. While Thursday’s and Friday’s volume has decreased, it is still quite a bit higher than one would like to see if supply is truly drying up. This would suggest the more aggressive figure chart objectives can be met.

While many market indexes rallied on Friday, the Wyckoff Wave actually traded lower. This was due, in part, to the huge drop in IBM, which fell by 17 1/8 points. Apparently, this was on poor earnings and most of the drop was in the first 5 min. of the trading day.

Over the weekend, I received an e-mail from a Wyckoff student, who asked how one could predict this poor performance and take a position, before it happened.

A tried-and-true Wyckoff principal is that the news doesn’t drive the markets. The news simply takes the stocks where they were going to go anyways – just a bit faster.

Let’s apply this axiom to IBM.

To do this, we need to take a fairly long view of IBM and how it has performed over the past year or so. If one were only to look at the stock over the past few months, a couple of extremely important clues would have been missed.

Just about one year ago, IBM rallied to an all-time high at point K. It then reacted and found support at point P. This established an 18 point trading range between $210 and $192. While this may seem overly wide, it is only a 9% spread. This would equate to a $4.50 point spread if analyzing a $50 stock.

IBM moved sideways within the trading range for almost 11 months. It’s long-term trend channel is neutral. It also established an intermediate term uptrend channel (drawn in blue) with a support line through points G – F and a parallel supply line through point H.

The intermediate-term trend channel provides an important clue. Look how the Optimism – Pessimism Index behaved as IBM rallied off point G. It has been relatively weak, which strongly suggests a lack of effort (O – P Index) is not in harmony with the results (vertical line chart).

Then, on the rally to point R, tried to leave the long-term trading range to the upside. While the move was on good price spread and volume, the O – P Index didn’t participate and IBM was in an overbought condition relative to its Technometer.

Regardless, IBM penetrated the resistance (jumps across the Creek) and then even backed up to the resistance (Creek) at point S. It then attempted to rally and quickly moved into an overbought condition relative to its Technometer. Unfortunately, on the rally to point T, IBM was unable to move into new high ground and put in a lower top. This is not a good sign at this important juncture. IBM needed to go and go now. It didn’t and reacted back into the trading range at point U.

This would suggest that the Creek jump was not going to be successful and IBM would return to its long term trading range.

IBM put in a second lower top on the rally to point V. This also allowed us to draw a short-term downtrend channel, just like the Wyckoff Wave. This was an opportunity for a short term position to the downside. The position could have been taken anywhere between points V and W.

IBM then returned to its long term trading range and the news certainly accentuated the decline. It now has the opportunity to test support at point G or even the bottom of the trading range drawn from point P.

Is IBM in a position for a major decline? If the move to point R was an upthrust, that could have been the case. However, there wasn’t an upthrust. What we saw was simply an attempt to jump the Creek, which failed.

IBM is back in its long term trading range and we are waiting for ending action to see what the next intermediate or long term trend will be.

As an old basketball coach, I remember remarking (quietly and courteously of course) to referees when disagreeing with a call – “Ball don’t lie”.

In this particular case, charts don’t lie either. This is a classic example of how a stock was ready to react and the news took it down much faster than would normally be expected.

Those Pesky Gap Openings

The stock market, as represented by the Wyckoff Wave, is solidly in the next stage of the bull market that began at the end of 2009. The last few blog posts have covered the  Wave’s intermediate and long-term trends and this past week has brought more of the same.

If we look at the intermediate up trend channel (support line drawn from points G – M, supply line drawn through L) we see a nice move to the upside. The Wyckoff Wave respected the trend channel at point N and then moved into an overbought position on the rally point R. The reaction to point U did not reach the support line, which is a positive indication.

The Wyckoff Wave became overbought again on the rally to point Z. The reaction to point A didn’t come close to reaching the support line and this week’s rally to point B again moved the Wyckoff Wave into an overbought position relative to its up trend channel.

Intermediate and long-term bullish investors who have taken positions at lower levels are comfortably counting their profits.

Long term investors are quite comfortable and not nearly as interested in the minor rallies and reactions as the short term trader.

Up until now, the Wyckoff Wave has rallied and moved sideways, rather than reacting. While this is fine with longer-term investors, it is difficult for short-term traders to identify entry points.

Short term traders cannot always wait for definitive Wyckoff signals like Springs and Upthrusts. They also try to identify turning points based on the relationships between price spread and volume. They also look for divergences with the Optimism – Pessimism Index and overbought or oversold conditions on the Technometer.

When looking at the relationship between price spread and volume it is helpful to remember the following guidelines.

1. When there is an up move and both price and volume increase from the previous day, there is a strong possibility demand is present.
2. Conversely, when a stock or index moves lower on increased price spread and volume, we can look for the presence of supply.
3. If a stock advances on reduced price spread and volume, we are probably seeing a lack of demand.
4. If the stock declines on reduced spread and volume, this suggests a lack of supply.
5. If a stock advances on reduced spread and increased volume, this is an indication that supply is present.
6. If a stock declines on reduced spread and increased volume, we are probably seeing demand come in to the stock.
7. If a stock advances on increased spread and reduced volume, this suggests a lack of supply.
8. If a stock declines on increased spread and reduced volume we are probably looking at a lack of demand.

These are good general rules, but not specific mechanical indicators. They should be included in part of the trader’s analytical process.

We may be seeing one of those turning points that would present a short term opportunity to the downside. Let’s look at this week’s rally to point B and see if there are some clues to suggest we could be seeing a short term reaction in the near future.

The first place to look is at the quality of the rally from point A. On Monday, the Wyckoff Wave rallied on reduced price spread and volume. This would suggest a lack of demand. Tuesday brought a slightly narrower price spread, but increased volume. Reduced spread and increased volume suggests the presence of supply.

This is where we should see good demand coming into the market, but instead it is being withdrawn and some supply was present.

The trend continued on Wednesday as the Wyckoff Wave continued to rally, but on reduced price spread and volume. Another lack of demand day.

Finally on Thursday, the Wyckoff Wave completed its five day rally on slightly reduced price spread and increased volume. This would normally suggest the presence of supply. However, a review of the intra-day chart of the Wyckoff Wave shows that after a nice morning rally, demand was once again withdrawn. While the Wyckoff Wave did react during the afternoon hours, the relationships between individual waves price spread and volume indicated good supply was not coming into the market.

As the Wyckoff Wave was advancing, it’s Technometer was moving into an extremely over bought condition. While this suggests a reaction is on the horizon, it is important to include the Force Index in an overall analysis.

When the Technometer is overbought, but the Force Index is producing positive or slightly negative numbers, this suggests the reaction will not be particularly long or deep.

A glance at the Force Index shows that while the Technometer was overbought, the Force Index was in positive territory.

The Optimism – Pessimism Index is in harmony with the Wyckoff Wave, eliminating any negative divergences.

While these are all positive indications of relative strength, the Wyckoff Wave has also moved from point A to point B in a rather weak manner. It is also in an overbought position relative to its up trend channel.

While there is the possibility of a short-term reaction, the Wave’s past behavior and the positive indications from the Wyckoff tools do not make this a sure thing. When that happens, we would look for a successful test of the highs, before considering a position to the downside.

On Friday, the Wyckoff Wave put in a rather interesting day, that is best seen on the attached intra-day chart.  The points marked A and B on the intra-day chart are the same as point A and B on the daily vertical line chart.

From the low at point A, the Wyckoff Wave established an intra-day up trend channel and rallied all the way to point B, which was Thursday’s high.

On Friday, there was a fairly substantial gap opening to the downside. Any supply that was present quickly dried up and the Wyckoff Wave moved into an oversold position relative to its intra-day up trend channel at point G.

The Wyckoff Wave spent the rest of Friday attempting to rally. The rally was on relatively narrow price spread and volume. While the last wave of the trading day does show large volume, it lasted one hour and 25 min. and gained less than 100 points.

A quick look at Friday’s price spread and volume showed that the Wyckoff Wave traded lower on decreased spread and volume. According to the guidelines listed above, that should have been a lack of supply day and a positive indication the Wyckoff Wave would continue to rally.

However, a day’s market action is taken from the opening price to the closing price. Using that criteria, the Wyckoff Wave rallied on decreased price spread and volume. This indicates a lack of demand. The lack of demand indication is backed up by the poor performance shown in the intra-day waves.

This suggests the Wyckoff Wave may be testing the highs at point B. If, on Monday, the Wyckoff Wave is unable to rally past point B, we would have a successful test of the highs and aggressive very short term positions to the downside could be considered.

Finally, I would not take a position until the intra-day up trend channel is broken. That way I would not be trading against the trend.

While this is of little interest to the intermediate and long-term bulls, who are happily counting their profits, it is an excellent opportunity to share some short term Wyckoff principles.

A Step Back View of the Market

This week the Wyckoff Wave attempted to leave the X – Y trading range to both the upside and the downside. As of Friday’s close, both of these attempts failed.

In addition, neither effort appeared to be ending action, in the form of an upthrust or a spring.

Last Friday the Wyckoff Wave left the trading range to the upside. However, Monday’s market action showed a lack of demand and good supply came into the market on Wednesday driving the Wyckoff Wave back into the trading range. The lack of demand illuminated the upthrust scenario. It was simply too soon for the Wyckoff Wave to leave the trading range and it simply returned and waited for some sort of ending action.

Did that ending action occur on Friday when the Wyckoff Wave briefly penetrated the support at the bottom of the trading range? If so, Friday’s market action could be called a spring.

However, there was a major gap opening to the downside and the Wyckoff Wave actually opened below the support line drawn from point Y. While demand did come into the market, it was not the kind of strong driving demand normally associated with a spring. In addition, a spring also needs supply. Supply is needed to form the spring action. Supply driving the market down like a compressed spring and demand driving it up as the spring releases. Since there was a gap opening, there was no supply driving the Wyckoff Wave below the support line.

Therefore, it appears we are still waiting for the stock market, as measured by the Wyckoff Wave, to give us a clear indication of its future direction.

There is a tendency to get caught up in the day to day market activity. As we do that, there is a tendency to forget that studying the market’s performance over the past few days only allows us to draw short-term conclusions.

As I have mentioned before, it is very helpful to spend a little time looking at the market from a longer-term view. This is best done using the weekly vertical line chart.

The Wyckoff Wave’s weekly vertical line chart places it almost in the middle of its long-term uptrend channel. It also shows the Wave penetrating the resistance (jumping the Creek) represented by the line drawn from point C. The relative shortening of price spread and decreasing volume during the past three weeks suggests the Wyckoff Wave is preparing to “roll over” and react back towards the resistance. If successful, this would be a normal Last Point of Support (LPS).

A quick look at the 100 Point & Figure chart count, presently gives the Wyckoff Wave a downside objective in the 33,400 area. A reaction to that objective area would keep the Wave above the resistance and be about what would be expected if the Wave puts in a LPS.

A review of the intermediate-term up trend channel adds credibility to the bullish scenario. This channel is marked in blue on the weekly chart.

Presently the Wyckoff Wave is right at the supply line of the up trend channel. For the past couple of weeks, it has also been in a slightly overbought position relative to the trend channel. It is a reasonable to suggest that a reaction back to test the support line of the trend channel is a very likely scenario.

Finally, since the end of the 2008 bear market the Wyckoff Wave has been in a long-term up trend. Every time the Wyckoff Wave has moved into an oversold position, it has not only rallied, but reached the supply line of the trend channel. There is no reason to expect this will not continue.

While the short-term Wyckoff trader is watching the market closely and waiting for a good entry point, probably to the downside, the intermediate and long-term investors are watching the market with less intensity and happily counting their profits.

Over the past five years, there have been numerous opportunities for the long-term investor to take new or add to existing positions. Because the Wyckoff investor looks for stocks that are stronger than the Wyckoff Wave, he or she is able to take advantage of the natural rotation of stocks and watch investments gain in value, even during sideways movements.

This is a happy time for the intermediate and long-term investor. The five-year bull market has produced consistent profits and lots of smiles. There is no reason to think the trend will not continue.

Is Something About To Happen?

The Wyckoff Wave finished a shortened, but unproductive week, with an attempt to leave its most recent sideways movement or trading range to the upside. While Thursday’s market action was not, in itself, particularly impressive, we might be seeing the beginning of some ending action.

The Wyckoff Wave has spent the last two weeks in this minor sideways movement, which began at point X. The operative word here is minor as the Wave is in the upper portion of a significant intermediate term up trend channel.

While supply continues to be present, the Wyckoff Wave refuses to react. In itself, the sideways movement is a positive sign. Coupled with the Wave’s history of moving sideways and then rallying within this up trend, the market’s outlook for the future seems quite bullish.

A quick review of the first daily chart shows the relative strength of the Wyckoff Wave within the intermediate-term up trend channel.

It also shows important resistance lines at the top of the phases of this year-long trading range. As the Wyckoff Wave has moved strongly through these lines, they now are expected areas of support when or if the Wyckoff Wave reacts back to an important Last Point of Support.

Presently, the most important of these lines is drawn from point X. The back of the resistance areas (Creek) is the line drawn from point X through point Z, B and D.

The second chart is a 100 Point & Figure chart of the Wyckoff Wave. In addition to the significant counts to the upside, there is also a potential count to the downside taken along the 34,900 line. Presently, there is a count of 1,400 points, giving us an objective to the downside of 33,500. This is right at the resistance/support line drawn from point X.

While this information is interesting and perhaps helpful, it is not a definite indication that the next move is down or that 33,500 is the final objective. The Wyckoff Wave could certainly continue to move sideways and add to that count.

With all that in mind, let’s take a closer look at Thursday’s market action and the scenarios that may be starting to play out.

I have drawn a very short-term trading range with a resistance line drawn from the highs at point X and the support line drawn through the low that occurred two days later.

On Thursday, the Wyckoff Wave began to leave this trading range to the upside. The day’s market action was on reduced spread and slightly increased volume.

As the Wave has moved above the resistance, we now need to consider a few short term scenarios. It is important that the intermediate and long-term scenarios are comfortably bullish and are not impacted by this short-term market analysis.

There are three possible scenarios and they are presented in order of their probability.

1. The Wyckoff Wave is beginning an upthrust. Narrow spread and only slightly increased volume are not positive indications. In fact, an intra-day review of the individual waves suggested more of a lack of demand. Either way, there is an opening for supply to come into the market and drive the Wyckoff Wave back through the trading range. It is also important to note that any advance will run into additional resistance as the Wyckoff Wave tests the support line of the intermediate term up trend channel.

Finally, after being overbought on Thursday, the Technometer moved into a high neutral condition. Until recently, the Technometer has been supported by a strong Force Index. The Force Index is now at -229. This suggests that any reaction cpuld be a bit deeper and longer.

2. The Wyckoff Wave could continue to leave the trading range to the upside and begin a new mark up phase. It this happens, Monday will bring wide price spread, strong volume and a weakening of the intermediate-term up trend channel. Unfortunately, this will move the Technometer into an overbought condition. This time, as mentioned above, a weaker Force Index will not sustain an overbought condition on the Technometer.

3. The Wyckoff Wave will simply react back into the trading range and continue it ssideways movement.

The Wyckoff trader should be prepared to respond to any of these scenarios. The aggressive short-term trader could consider positions to the downside on the upthrust.

At this time the other scenarios would not require any market action. If the market breaks out to the upside, short term bulls should wait for the next reaction to take a position. Chasing the market, especially one that will be over bought, can be a bit tricky.

Intermediate and long-term bulls are happily watching their profits accumulate. Even though the market has moved sideways, over the past two weeks, portfolios have increased in value as Wyckoff investors have accumulated stocks that are stronger than the Wyckoff Wave.

If the Wyckoff Wave experiences a short-term upthrust and reacts, there is a good possibility this will turn into an important Last Point of Support. This will be an excellent opportunity to add to intermediate and long-term portfolios.

Longer Term Perspectives Can Be Helpful

Since the first of the year, the Wyckoff Wave’s performance, while quite positive, has been a bit frustrating. We have seen short rallies and long sideways movements. Spreads are narrower and trying to time turning points has been an exercise in frustration.

When this happens, it is always helpful to take a few steps back and look at the stock market from a broader perspective.  In this case, the weekly chart of the Wyckoff Wave.

After looking at the narrow spreads and prolonged sideways movements on the daily chart, I found that a review of the Wave’s weekly chart seemed to put things in a better perspective.

The most significant point is that the Wyckoff Wave has easily returned to its long term up trend channel, drawn in orange. This trend began at the bottom of the 2008 bear market. Although the Wyckoff Wave has been in both the overbought and oversold positions relative to the trend channel, it has been in an up trend for just over four years.

During that time, the Wyckoff Wave gained 19,856 points or an increase of 134%. This has been a very impressive bull market and it doesn’t appear it’s going to end anytime soon.

After a long sideways movement, which began at point U, the Wyckoff Wave weakened the trend channel as it reacted down to point D. It is reasonable to call point D a spring.

The Wyckoff Wave then began, what has become, and intermediate term up trend channel. This is marked in blue. It rallied all the way to point G. Point G was just above the resistance (Creek) drawn from point C.

The slight penetration almost seemed to be an upthrust. However, the price spread and volume was not indicative of an upthrust. The Wyckoff Wave then moved sideways, reacted briefly to point H and then drove into new high ground.

This penetration of the resistance (jumping the Creek) is much more apparent on the weekly chart, than on the daily chart. The Wyckoff Wave has decisively returned to the uptrend channel and has actually slightly weakened the intermediate-term up trend channel.

Even more important, there is plenty of room for the Wyckoff Wave to react back towards the now support/resistance line (Creek) drawn from point C. This enhances the probability of a successful and extremely important Last Point of Support (LPS), which could mark the beginning of a new move to the upside.

In fact, the support line of the long term up trend channel could end up being an excellent spot for this LPS.

I have also added a weekly line chart of the Optimism – Pessimism Index and placed it below the volume on the weekly chart of the Wyckoff Wave.

I have drawn a long term up trend channel using the same support and resistance points for the trend channel on the Wyckoff Wave vertical lne chart. Notice how, over a four-year period, the O – P Index is weaker than the Wyckoff Wave and in an oversold position relative to its up trend channel.

At first glance, this would seem to be a negative indication. However, even though it is weaker over the long term, the Optimism – Pessimism Index is in harmony with the Wyckoff Wave. As a matter of fact, if you compare the O – P Index with the Wyckoff Wave using the intermediate term uptrend channel, you will see the O – P Index is significantly stronger than the Wyckoff Wave.

What we are seeing on the long-term chart is evidence of the tremendous amount of overhanging supply that continues being dumped on the market.

When this supply encounters a strong Wyckoff Wave, that is determined to rally, the result is a standoff and the sideways movement, without reactions, that we have been seeing.

On Friday, the Wyckoff Wave closed at 34,606. The top of the 2000 bull market was just over 38,000. The main distribution area prior to the 2008 bear market was also at the 38,000 level. That’s where an awful lot of folks bought into the market and, even after all those years, are now trying to get out even.

The market strength is shown by its sideways movement, rather than a strong reaction.

We can see the impact of the O – P Index and the Force Index on the Wyckoff Wave, by looking at the daily chart.

Both are extremely positive. We have already discussed the Optimism – Pessimism Index, but when the Force Index produces positive or very low negative numbers, it is a positive sign.

At point X, the Technometer was in an extremely overbought condition, relative to the Wyckoff Wave. They should have precipitated a strong reaction. Instead the Wyckoff Wave moved sideways.

If you look at the Force Index from point X through Friday, we have seen extremely strong readings. This is why the Wyckoff Wave hasn’t reacted.

Will the Wyckoff Wave react in the coming days? If so, and the reaction is on reduced price spread and volume it would be an indication that all the supply is finally drying up. In this case, a reaction would be a good sign for the bulls.

The Wyckoff Wave’s next objective on the 100 Point & Figure chart is between 37,400 & 38,900. That count is along the 31,000 line and only includes the first two of four phases.

The stock market appears to be setting up for its next move to the upside. Let’s hope it comes sooner, rather than later.

The Little Market Index That Could

Many years ago a delightful children’s story was written about a small railroad engine in a large railroad yard. The engine’s name was Tootle and, despite being small, he made up for everything with his unbounded determination to deliver his cargo. He chugged. He pulled. He overcame all the obstacles in his way.

For the past few months, the Wyckoff Wave has been the little market index that could. Ever since the middle of November, 2012, the Wyckoff Wave has continued to rally, despite the obstacles (supply) that it is met along the way.

Ever since its first reaction to point M, every time the Wyckoff Wave has met resistance and has moved sideways, it gathered itself and continued chugging along to the upside.

While this is all positive, it is frustrating to short-term traders who would like to see the market move definitively in one direction or the other. The days of narrow price spreads and sideways movements are not conducive to short and profitable forays into the market.

On the other hand, during the sideways moves, the intermediate and long term traders have a nice period of time to assess potential candidates and take long positions. Once having done that, they can sit back and happily count their profits.

However, the stock market is in a “this is what I did for you yesterday” place. It’s all about “what are you going to do for me tomorrow”. Will the Wyckoff Wave continued to rally? Will it finally react and put in a Last Point of Support or will it be overcome by supply and react back into the-year-old trading range?

Let’s look for some clues within the Wyckoff Wave stocks. The Wyckoff Wave closed on Friday in short, intermediate, and long term trends. Of the 12 stocks that make up the Wyckoff Wave, 6 are in harmony with the Wave, 5 are weaker and 1 is stronger.

If we look at the stocks as specific groups we find the following:
The transportation group is stronger than the Wyckoff Wave.

Chemicals, Financial, Industrial goods, Manufacturing and Technology are the same as the Wyckoff Wave.

Communications, Consumer Goods, Energy and Industrial Equipment are all weaker than the Wyckoff Wave.

However, every Wyckoff Wave stock, except one (Caterpillar), that is weaker than the Wyckoff Wave is in a short term up trend.

This presents a very positive view of the market’s future direction.

While the weekly Market Letter tries to take a longer-term view of the Wyckoff Wave and the stock market in general, something happened on Friday that was interesting and potentially very important.

On Friday, the Wyckoff Wave only gained 56 points on volume of 564,301,853 shares. At first glance this would appear that the Wave encountered supply.

However, what really happened was and intra-day failure to the downside, as shown on the intra-day chart. Strong supply (108,846,566 shares) came in to the market during the first 5 min. of the trading day. However, the Wyckoff Wave only lost 8 points. This strongly suggested that this large amount of supply was easily taken in. Score one for the bulls.

The Wyckoff Wave then rallied and moved sideways for the next two hours. Then supply returned again. This time the intra-day wave lasted 3 hours and 45 min., but only lost 125 points, or 3/10 of 1% of its value. Volume was even higher at 145,548,324 shares. Once again, the supply thrown on the market was easily absorbed.

Up until this point, the day’s market action pretty much mirrored how the Wyckoff Wave behaved every time supply came into the market. It took it in without reacting and continued to move sideways.

At 3:25 PM on Friday, things changed. In the last 35 min. of the trading day, the Wyckoff Wave gained 10 more points than it lost in the previous 3 hours and 45 min. and did so on extremely high volume of 154,309,841 shares. This is the first time, in quite some time, that strong demand has come into the market after the supply has been taken in. The volume of the last 35 min. wave was 27% of the total daily volume.

While this is a very minor change in character, it has the potential to be significant.

Is the market going to rally strongly and begin a nice markup phase, or will supply take control and drive us back to a Last Point of Support or even into the original trading range?

For the past several days the Technometer has been in a dangerously overbought condition. Despite that, the Wyckoff Wave has refused to react.

That doesn’t make sense, unless one includes reaction of the Force Index when analyzing the Technometer. When the Force Index is producing positive numbers, it has a strong mitigating effect on the Technometer. This means that even if the Technometer is overbought, a strong Force Index will minimize, or even prevent the expected reaction.

If you look at the daily chart, you will see that in the area around points H, and P the Technometer was in an extremely overbought condition. Yet the Wyckoff Wave did not react, but moved sideways. During that time, the Force Index numbers were extremely positive. This is an example of how powerful the Force Index is and how important it is to use it in conjunction with the Technometer.

It would appear that the best possible reaction scenario would only be to put in a Last Point of Support.

All this suggests that the Wyckoff Wave may well continue to be like the little engine called Tootle and continue to deliver its cargo to the railroad station at the top of the rally.

Pesky Supply & Sideways Reactions

This week the Wyckoff Wave left the minor trading range and rallied to its highest level since the 2007 – 2008 bear market. However, the last four trading days were on relatively reduced price spread and good volume. In addition, the Wyckoff Wave was unable to penetrate the supply line of the intermediate-term up trend channel.

This suggests the Wyckoff Wave has jumped the Creek and may well be preparing to react towards an important Last Point of Support.

But will the Wyckoff Wave react? The Wave began this latest rally in November, 2012 at point G. There was a nice rally to point O. Here the Wyckoff Wave ran into resistance at the bottom of the resistance area (Creek) drawn from point A. To point A marked the beginning of this long sideways movement and this resistance area was quite significant.

There was a normal corrective rally back to point M and the Wyckoff Wave rallied to point N. The rally took the Wyckoff Wave slightly above the resistance area (Creek). This is where there was an interesting change in character.

Instead of reacting, the Wyckoff Wave moved sideways for eight trading days before continuing the rally.

It then did the same thing as it rallied into and through the next resistance area (Creek) drawn from point X. At point R, the Wyckoff Wave could have been expected to react back to the Creek for a last point of support. Instead, it moved sideways on relatively narrow price spread and, in the beginning of the move, reduced volume.

Then we saw a possible ending action at point U. Point U penetrated the support for a potential spring. However, a spring needs to be confirmed with good demand and while the Wyckoff Wave rallied nicely, only one of the trading days following the spring could be defined as a demand day.

This week, the Wyckoff Wave rallied, tested the supply line and moved into an oversold condition on the Technometer. Once again, this would suggest a reaction. Once again, the Wyckoff Waves moved sideways on reduced price spread and sustained volume.

For several days this week, the Wyckoff Wave attempted to rally and saw supply come into the market Then the supply was quickly withdrawn. This left an opening for strong demand to return. It didn’t. Instead, the Wyckoff Wave had several poor quality intra-day rallies. Why didn’t the supply follow through and why is there no sustained demand?

The answer is probably in a five-year-old distribution area. Before the 2007 – 2008 bear market, the Wyckoff Wave experience climactic action around the 40,000 level. It then reacted and moved into a distribution area. The longest phase was between 32,000 & 36,000.

On Friday, the Wyckoff Wave closed at 34,111. This is smack dab in the middle of a 2007 distribution area. That pesky overhanging supply that has come into the market for the past year has not been taken in.

However, during this long sideways trading range, a lot of supply has been dropped into the market and now it is more readily taken in by stronger hands. This is probably why we are seeing sideways movement rather than the strong reactions we saw earlier in the trading range.

When reacting towards a Last Point of Support, Wyckoff teaches us to look for reduced price spread and volume. This is normal and expected.

Another, often forgotten, Wyckoff technique is that a sideways move is an even stronger form of a corrective reaction. In this situation, there is a great deal of interest in the supply that is being dropped into the market. There is so much interest that the bulls are more than happy to grab as much stock as they can.

We have seen this happen after the rally to point N and again on the rally to point R. It appears we are now seeing it again.

While the Wyckoff Waves can certainly react, it appears we are on the cusp of a strong move to the upside. We certainly haven’t seen an upthrust and the 100 Point & Figure chart has no count to the downside. We have seen a strong market moving through to important resistance areas, happily taking in supply as it goes.

I would suspect that at some point in the fairly near future, there is going to be no more supply left and we are going to see a strong rally that will take the Wyckoff Wave to and probably past historical tops.

Springs & Upthrust – What’s Going On?

Last week, the Wyckoff Wave appeared to spring the support line of the short term trading range. However, as mentioned last week, good demand had not come into the market to confirm the spring. This suggested we have not seen a spring and were still waiting for ending action.

Then on Monday, strong supply came into the market and drove the Wyckoff Wave back through the support area. It closed at the bottom of a wider price spread and increased volume at point U. Could this be the Spring we were waiting for?

A poor attempt to rally on Tuesday indicated a lack of demand. Once again, demand did not come in after a potential spring. While the Wyckoff Wave put in a better performance on Wednesday, the increased price spread and decreased volume suggested a lack of supply. Still no demand.

Until strong demand came into the market the spring could not be confirmed. At this point the Wyckoff Wave needed to break through the resistance on strong demand and then react and test the Spring.

Instead, the Wyckoff Wave slightly penetrated the resistance and encountered strong supply. Did we see an upthrust?

An upthrust is defined as narrow price spread with increased volume and a poor close. Thursday’s market action brought the narrower price spread and the poor close. However, volume was sustained. However, a review of the intra-day waves showed that strong supply came into the market, especially near the end of the trading day. This added some credibility to the upthrust scenario.

Even though all the upthrust criteria was not met, this had to be considered a potential upthrust. Whether it was or was not would be proven by future market action.

If we were seeing an upthrust, the supply that came in on Thursday needed to be continued on Friday.

Friday morning looked promising for the bears. There was a strong gap opening to the downside, but then supply was quickly withdrawn and the Wyckoff Wave rallied. This put a bit of a crimp in the upthrust scenario.

It is also important to remember that if we need to be wary of Springs in a down trend, we must also be careful of Up thrusts in an up trend. While the short-term trend of the market is neutral, the intermediate term trend of the market is up.

For the past month, the Wyckoff Wave has moved sideways in a short term trading range and been in a short term neutral trend. All of a sudden it has attempted to both spring and upthrust the trading range. The response to both has not fulfilled their definitions. Good demand did not appear on the potential spring. Strong supply dried up on the potential upthrust.

What does all this mean and what is the market going to do next?

First, let’s look at market trends. The short-term trend of the market, defined by the trading range, is still neutral. The intermediate-term trend of the market, as defined by the uptrend, drawn in blue, on both the daily and weekly charts is most definitely up.

The long-term trend of the market, as defined by the uptrend, drawn in orange, on the weekly chart is also up. The Wyckoff Wave had been in an over sold position, but has returned to its long term up trend channel.

In addition, while there are substantial Point & Figure Chart objectives to the upside, there is only a count of 1,700 points. This only gives us a downside objective of between 31,800 & 31,700. This count would only be of interest to short-term traders.

It appears we are looking at one of four possible scenarios.

1. The Wyckoff Wave has upthrusted the trading range, reacted and is now testing the upthrust. This scenario would give us the short-term objective mentioned above.

2. Even though it was slightly above the resistance line, the Wyckoff Wave simply met resistance and is reacting to test the Spring. While this is contradictory to the upthrust scenario, it must be considered.

3. Both the Spring & upthrust failed and the Wyckoff Wave will continue to move sideways in its short term trading range and wait for future ending action.

4. After the Spring at point U, we are seeing some absorption at the top of the trading range. The Wyckoff Wave will work through the absorption and move into new high ground. It also may be drven back into the trading range. If so, scenarios 2 & 3 continue to be valid.

Intermediate and long-term bulls are not nearly as troubled by these events as short-term traders. The intermediate and long-term investors trade with the trend and, as both are up, could have used this sideways movement as an opportunity to add to their positions.

Conversely, the short-term trader is really struggling with the market. Because short term trades are short in both time and price movement, the short-term trader is focused on identifying new market trends just before or as they happen.

In other words, in this market the short-term trader sometimes needs to act before receiving absolute confirmation that we have seen an upthrust or spring.

When this happens, focused discipline is required. For example, on Thursday night or early Friday morning, it was reasonable for the short term trader to assume there was an upthrust. The short-term trader could then look to take position(s) in previously identified candidates.

However, and this is extremely important, the characteristics that define the upthrust must continue on Friday. In other words, supply needed to be present on Friday. This would result in increased price spread and volume to the downside.

That didn’t happen. Instead supply dried up and the market rallied. The disciplined short-term trader realizes that what should have happened, didn’t happen. The trader now has two choices. The disciplined short-term trader closes the positions and either breaks even or takes a very moderate loss. The wishing and hoping short-term trader holds the positions in hopes that the market may react in the future. More often than not, that simply increases the trader’s loss.

Are you a disciplined short-term trader or a wishing and hoping one?

Did We Have A Minor Spring?

On Thursday, the Wyckoff Wave penetrated the support line drawn from point S and then rallied back into the trading range. This gives us an excellent opportunity to discuss Springs and see how they apply to today’s market action.

The first rule in identifying a spring is that:
A Spring is not a Spring until it has Sprung. That means that just because a stock or index penetrates a support area it is not automatically a spring.

When a stock or index penetrates the support, the Wyckoff student needs to determine whether supply is truly present or if it isn’t there at all. If supply is not there, we are obviously seeing a lack of supply.

This presents an opportunity, but only an opportunity, for demand to come into the stock or the index.

Either demand will appear or it won’t. If it appears, we have a spring. If it doesn’t, there is no spring. A Spring cannot be confirmed until demand appears. Sometimes this happens in one day. Sometimes it can take two or three days.

When a support line is penetrated, one of three things are going to happen.
1. There will be a wide-open break to the downside which indicates the presence of supply. In other words, the stock will “fall through the ice”.
2. Supply will be inconsistent. It will appear, disappear and reappear in a more sporadic manner. In most cases, this leads to a wide-open break to the downside, but the stock or index can also continue a sideways movement.
3. Supply dries up as the support is broken and strong demand comes into the market. This is a spring. However, it is important to remember that a spring is not a spring until we see the appearance of good demand.

How significant are Springs? The answer is most always found in the Point & Figure Chart. If there is a good count from the Spring back to the trading range, the spring is significant. If there is a small count, the spring can be considered minor.

An example of a classic one day spring can be found on the second of the four attached charts. In August, 2011 the Wyckoff Wave went into a trading range at point X. The day before it penetrated the support at point X, the Wave reacted on increased price spread and volume. Supply was present.

On the day of the Spring, the Wyckoff Wave experienced a gap opening to the downside and penetrated the support. However, almost immediately, supply dried up and good demand came into the market. This was a classic Spring.

Sometimes Springs can be a bit messy and take some time to be confirmed. A good example of this is found on the third of the four attached charts.

In March 2012, the Wyckoff Wave completed its long rally to point A and began a trading range that is still in effect. The Wave then reacted to point F, which allowed us to establish an area of support.

Two months later, in May, the Wyckoff Wave penetrated the support to point J. This appeared to be a Spring. The day before the low at point J was on wide price spread and increased volume. Supply was present. However, the next day brought reduced spread and slightly reduced volume. This suggested a withdrawal of supply and also that some demand had come into the market.

If supply had dried up, the following day would have brought wide price spread and increased volume. Instead, there was wider price spread, volume was reduced. This showed that while supply had somewhat dried up, good demand was not coming into the market. This placed the Spring in jeopardy.

That concept was confirmed as the Wyckoff Wave could only rally to point K and then reacted sharply down to point L.

On this reaction the Wyckoff Wave penetrated the support on increased spread and volume. Supply was present. The following day brought increased price spread, but decreased volume. This suggested the presence of demand and that, at least temporarily, supply was being taken in.

On the day marked point L we saw increased price spread and decreased volume. This suggested a lack of demand. While supply has been withdrawn, no strong demand has come in to drive the Wyckoff Wave higher.

The day following point L was on reduced price spread and volume. Again we had a lack of demand. While supply had apparently been withdrawn, no demand had come in to fill the vacuum. This left the Wyckoff Wave vulnerable to a continued reaction to the downside.

So far, we have seen the withdrawal of supply, but it has not been replaced by good demand.

Demand did arrive at the last minute. The Wyckoff Wave rallied on good spread and increased volume and closed at the support line. It then rallied up to point M and reacted back to point N for a successful test of the spring.

While point L was a spring, it was not confirmed until two days after the low when demand came into the market. While this was a Spring, it was a bit uninspired.

This also showed a relative lack of strength, which was confirmed when the Wyckoff Wave was only able to rally back into the trading range and continued its sideways movement.

Finally, let’s return to today’s market. The day before the potential spring at point U, the Wyckoff Wave reacted sharply on wide price spread and increased volume. Supply was definitely present.

The following day, the Wyckoff Wave penetrated the support at point U. It did so on decreased price spread and increased volume. This suggests the presence of demand.

A review of the intra-day waves showed that supply dried up during the morning hours and was then replaced by decent demand. Because the Wyckoff Wave was unable to continue to react, we can once again conclude that the available supply was being taken in and drying up.

However, we still needed strong demand to come into the market. Friday gave us slightly increased price spread and decreased volume. This would suggest a lack of supply. Strong demand did not come into the market. So far, all the requirements of the spring scenario have not been fulfilled. The spring cannot be confirmed until we see good demand.

Even if the spring is confirmed, it must be considered a minor Spring. The attached Point & Figure chart only gives us a 600 point count with an objective of 33,600. While this count can be increased in the future with a successful secondary test and/or a Last Point of Support, right now the count is 600 points.

Will this Spring be Sprung? We’ll probably find out on Monday.

Is The Market Going To Crash?

Everyday I receive e-mails from Wyckoff students and other stock market aficionados, who have visited the website, that ask interesting questions and share opinions about the stock market’s future direction.

Recently, many of the opinions are becoming more bearish in nature. They are similar to e-mails I received last September and October that forecast a major decline in the market.

While I am quite bullish, especially about the intermediate and long-term trends, one can get too caught up in their opinion and miss important changes in direction. To avoid this, I often take some time and approach the market from the opposite point of view. In this case, my goal would be to find bearish indicators and trends that would justify this possible change in direction.

To do that, it is best to start with a longer-term perspective. The weekly chart shows the Wyckoff Wave in a long term up trend channel. This channel is marked by the orange trend lines.

In March of 2012, the Wyckoff Wave rallied on increased spread and volume to point U. This marked the beginning of the 11 month sideways movement we are still seeing today.

Could the move to point U be a Buying Climax? We saw increased spread and volume. The reaction to point V, even though it lasted a month, could have been a normal corrective reaction and the rally to point W, which was lower than point U, could’ve been a secondary test. Usually, these Wyckoff indicators happen quickly. These took almost 2 months.

Then let’s look at the reaction to point X. This took an additional five weeks. It also held above the halfway point of the rally from point H to point U.

We now have two possible scenarios.
1. We did see a Buying Climax at point U and are beginning a sideways movement that has could be distribution.

2. We saw the Wyckoff Wave rallied to the supply line of its long-term uptrend channel at point U and make a normal corrective reaction back down to the area of the trend channel’s support line. The Wyckoff Wave also held above the halfway point of the rally from point H to point U. This scenario would conclude that the Wyckoff Wave did meet supply at point U and began to move sideways in a trading range. Whether this trading range was accumulation or distribution, would be answered by both the price and volume relationship within the trading range and, most importantly, the ending action.

After reacting to point X the Wyckoff Wave rallied and slightly penetrated the resistance at point A. Was this an upthrust?

An upthrust means good supply is coming into the market and the Wyckoff Wave should have reacted fairly quickly back down to the bottom of the trading range. That would be the support line drawn from point V. Instead, for the next five weeks, the Wyckoff Wave reacted on reduced spread and volume to point B. The Wyckoff Wave also stayed in its long term up trend channel. Based on that, it is difficult to conclude that point A was an upthrust.

The Wyckoff Wave then rallied again. It penetrated the resistance line drawn from point U on increased price spread and volume. Could this have been the upthrust?

Once again the Wyckoff Wave reacted. The first four weeks was on reduced price spread and volume. This would strongly suggest point C was not an upthrust. In fact, the move to point C looks more like a Jump Across the Creek.

In this case, the Wyckoff Wave backed up to the Creek, tried to rally and encountered strong supply that drove it back down to point D. Following the bearish scenario, could this have been a Sign of Weakness?

Notice that point D was higher than point X. Also it is important to note that the Wyckoff Wave saw support as it reached the support line drawn from Point V. In fact, it could be argued that point D was a spring.

It would appear that the Wyckoff Wave tried to leave the trading range to the upside at point C. It was not able to do so and simply returned to the trading range to begin another phase of the sideways movement.

Point D occurred in the middle of November 2012. Since then, the Wyckoff Wave has rallied in an up trend channel. It moved through the original Creek area (lines drawn from point U) and penetrated the resistance line drawn from point C. It has now moved sideways for a little over two weeks. Could this sideways movement be distribution?

If it is, let’s look at the Point & Figure chart for cause and effect. Presently there is a count of 900 points along the 33,300 line of the Wyckoff Wave’s 100 Point & Figure chart. This gives us a downside objective of between 32,000 and 32,400. If the Wyckoff Wave reacted and reached these objectives, they would be either testing the support line of the present up trend channel or the resistance at the original Creek drawn from point U. There are no objectives below this area.  This objective area becomes even clearer when looking at the daily chart.

More importantly, have we seen any ending action? Could point R has been an upthrust?

Once again, an upthrust means good supply is coming into the market and there should have been a strong reaction back into the trading range. This didn’t happen. Instead the Wyckoff Wave has moved sideways in a very narrow trading range for two weeks.

Until this week it moved sideways on reduced spread and volume. This is more indicative of accumulation than distribution. However, beginning last Tuesday it did increase. This suggests that supply is not completely dried up and the Wyckoff Wave may have to react.

The Point & Figure chart tells us this reaction should be relatively minor and may turn out to be an important Last Point of Support.

Despite trying to view the market from a bearish perspective, it is difficult to come to those conclusions. It would seem the worst-case scenario would have the Wyckoff Wave simply fall back into the trading range and begin another phase of the sideways movement.

Presently, the Wyckoff Wave is in the old 2007 distribution area. There is a tremendous amount of overhanging supply that was available after the 2008 bear market. The Wyckoff Wave spent almost one year taking in supply. Despite bearish opinions, it is probably ready to begin a new move to the upside.

Is The Sideways Move Bad For The Bulls?

Last week I wrote about the strong possibility that the Wyckoff Wave was about to continue another leg on the bull market that began in 2008. The market responded to my comments by moving sideways for the next five trading days.

Weeks like these are frustrating for short-term traders who need to see movement in one direction or the other. The market has not reacted enough to catch stops, but it has not rallied enough to produce profitable trades.

Longer-term investors have an opportunity to identify candidates that, should the market rally, would increase nicely in price.

Of course, in both these instances, the market needs to rally nicely to the upside.

Last week, my comments were fairly bullish. Despite the frustration of the sideways movement, this has not changed.

Last Friday, the Wyckoff Wave put in a very positive day and moved into new high ground at point R. This looked like a defining moment, but unfortunately the Wave was not ready to continue to the upside.

Tuesday brought an interesting phenomena. The Wyckoff Wave reacted and there was a substantial spread between Friday’s and Monday’s closing prices. Volume also increased. It would certainly appear that good supply came into the market and the Wyckoff Wave was in the process of reacting back into the trading range and dashing the bulls dreams of profits.

A closer look at the day’s market action gave us a different perspective. There was a huge gap opening to the downside. Gap openings are not included in price spread analysis. The opening price simply where the day started.

Decreased price spread and increased volume is associated with demand, not supply. A review of the intra-day waves showed that after the gap opening supply was gradually withdrawn. The Wyckoff Wave then rallied during the afternoon hours. If the gap opening is excluded,  the afternoon rally was stronger than the morning reaction.

This market perspective, which was reported in Monday’s Pulse of the Market Report, strongly suggested the market was not yet ready to return to the trading range.

Tuesday brought a rally on increased price spread and volume. Wednesdays reaction was on decreased price spread and volume. Both are bullish indications.

However, Thursday and Friday gave us some indications that, while conditions were still positive, the Wyckoff Wave may not be ready to continue the rally.

On Thursday there was a potential spring as the Wyckoff Wave penetrated the low at point Q and then rallied. However, a rally off a spring is filled with demand and when looking at a spring on a vertical line chart, that demand is very apparent. That didn’t happen on Thursday and there was no follow through on Friday. In fact, Friday’s Wyckoff Wave rallied on reduced spread and reduced volume. This is indicative of a lack, or withdrawal of demand.

On Thursday, the Wyckoff Wave also returned to its up trend channel and on Friday it closed right at the channel’s supply line. This makes the Wyckoff Wave vulnerable to continue the reaction, which can be defined as a backup to the Creek for a possible Last Point of Support.

On Thursday the Wyckoff Wave Technometer reached 48.68. This is .32 away from being overbought. It is difficult to see the Wyckoff Wave beginning to rally in an overbought condition.

While the last two days were not bullish, there are still no indications the Wyckoff Wave is ready for a more significant reaction.

1. The Optimism – Pessimism Index continues to lead the Wyckoff Wave at a critical time.

2. Supply has had numerous opportunities to come into the market and drive the Wyckoff Wave back into the trading range. This has not happened. Even when some supply does appear, it is not sustained and easily taken in. This would suggest that professional buyers are happy to take in any supply that is dumped on the market.

3. Instead of a more defined reaction, the Wyckoff Wave has moved sideways. This in itself is a positive indication. Notice what happened when the Wyckoff Wave rallied to point N and moved sideways for 10 trading days. It then rallied strongly to its present position.

4. The Wave’s Technometer is working off its overbought numbers (only one remains) and can easily become oversold on a minor reaction.

5.  The Wyckoff Wave has returned to its long term up trend channel on the weekly chart. It is also important to note that the channel’s support line is right in the middle of the resistance area drawn from point C. This is right where one could expect the Last Point of Support. I have also drawn in the uptrend channel from the daily chart.

These five points make a reasonable argument in favor of the no major reaction scenario. The bullish outlook remains. There is also one other significant, non-technical consideration.

Interest rates are extremely low. These days it is difficult to get much more than a 4% return when investing in fixed income securities. The uncertainty of the past few years has left a great deal of money not invested in the stock market. The strategy of a lower risk returns simply isn’t producing enough income to be an acceptable return on investment. Professionals are realizing this and adjusting their portfolios accordingly.

That is one reason why supply is happily being taken in and the future long-term outlook is encouraging.

Has The Bull Market Returned?

On Friday the Wyckoff Wave put in a significant day to the upside. It appears to be in the process of finally leaving the 10 month trading range and perhaps beginning a new markup period.

In Wyckoff terms, this is called “Jumping the Creek”. In a perfect world, the Wyckoff Wave would continue to rally and then react back towards the resistance line on reduced price spread and volume. The “Backup to the Creek”, if successful, would constitute an important Last Point of Support. This would set the stage for a new strong rally.

Last Wednesday and again on Thursday, Pulse of the Market subscribers received a buy signal. This was applicable to both short traders and intermediate to long-term investors.

The buy signal was based on the following:

1. While, after reaching and slightly penetrating the resistance line drawn from point X, no real supply came into the market to drive the Wyckoff Wave back into the trading range.

2. We did not see an upthrust. In fact, relative volume was reduced.

3. As the Wyckoff Wave moved sideways, the Technometer began to move towards an oversold condition. This was an important signal that any reaction would not be deep or long in nature.

4. Even though the Technometer was moving towards an oversold condition, the Force Index remained strong and continued to produce positive numbers. This was a very positive development and also suggested any reaction would be extremely mild.

5. The Optimism – Pessimism Index was moving strongly into new high ground and was leading the Wyckoff Wave. This strongly indicated that good demand was present and any supply being dumped on the market was easily taken in.

These significant Wyckoff indications gave the market an extraordinarily good chance to rally. Wyckoff Pulse of the Market subscribers who had taken positions earlier in the week, then enjoyed Friday’s positive market performance.

Over the weekend, subscribers also receive an analysis of the Wyckoff Wave 100 Point & Figure Chart, which identified the four phases, their accounts and the short, intermediate and long-term objectives. The most aggressive of which had the Wyckoff Wave increasing in value by 50%.

Friday’s market action also changed some of the market trends. The short-term trend, which was up, continues. However, the intermediate-term trend is changed from neutral to up. Finally, on the weekly chart, the Wyckoff Wave has returned to its long term trend channel. This would change the long-term trend to up.

While all of this is extremely good news for the bulls, the Wyckoff Wave still has a few things to confirm before the new rally becomes official. Once the Wyckoff Wave “Jumps the Creek”, three things can happen.

1. As mentioned above, the Wyckoff Wave can backup towards the resistance to test the “jump” and put in an important Last Point of Support. This is the best scenario. It is also important to note that while the backup can be easy to see and take a few days, it can also be very brief and missed by many traders. As an old trader once said, “once the train pulls out of the station, it doesn’t slow down to wait for stragglers”.

2. The Wyckoff Wave can backup (react) towards the resistance and put in an unsuccessful test. This would cause it to fall back into the trading range. This would negate the positives of the “jump” and the Wyckoff Wave would move within the trading range until there was new ending action. This is exactly what happened on the reaction to point E on the daily chart.

3. The Wyckoff Wave had a successful backup and test, but then moved sideways in a new phase of the trading range. This is exactly what happened when the Wyckoff Wave penetrated the trading range on its rally to point X. There was a “Jump Across the Creek” to point X and a backup to point A. The Wyckoff Wave then moved sideways to point D, where it fell back into the original trading range.

While any of these three scenarios can most certainly happen, at this point, scenario #1 seems the most probable.

The Wyckoff Wave has put in a long sideways trading range with plenty of rallies and reactions. It appears our patience is about to be rewarded.

Bulls vs. Bears – The Battle Continues

This week the stock market, as measured by the Wyckoff Wave, rallied out of one resistance area right into another. The week gave us a change of character, as a market that appeared ready to react suddenly rallied and is in a position to move into new high ground.

However, in the stock market, nothing is simple. On Thursday, the Wyckoff Wave rallied and slightly penetrated the resistance at the top of the trading range drawn from point X. The move was on moderate volume.  Was the Wyckoff Wave prepared to jump the resistance (Creek) and move into new high ground?

There were some very conflicting signals.
Some positives were:
1. While the volume was sustained, Thursday’s price spread increased. This suggested, at just the right time for the Bulls, some demand was coming into the market.
2. The Optimism – Pessimism Index was leading the Wyckoff Wave, which is certainly an encouraging sign.
3. While the Technometer was in a dangerously overbought condition, the positive numbers emanating from the Force Index somewhat mitigated the overbought situation.
4. On the Weekly Chart, the Wyckoff Wave has penetrated the long-term support line and is attempting to return to the up trend channel.

There were also negative indications:
1. As the Wyckoff Wave approached final resistance, the relative spread on Wednesday, Thursday and now Friday was narrowing. Price spread usually increases when a stock or index is trying to move through resistance.
2. Instead of increased volume we saw relatively decreasing volume.
3. Regardless of the positive Force Index numbers, the Technometer was dangerously overbought. When a major resistance line is about to be penetrated, it is not good for the Technometer to be in that condition.
4. While it can be a positive sign when the O – P Index leads the Wyckoff Wave, the O – P Index is also in a negative divergence with the Wyckoff Wave. The results (price) is not matching the effort (volume). This conundrum is usually resolved by the Wyckoff Wave making a quick definite move. In other words, it needs to “go and go now”.

Another negative was added on Friday. The Wyckoff Wave did not “go and go now”. Instead, after some early demand dried up, supply came into the market. Then there was a relatively bleak rally for the rest of the trading day.

This is a difficult and confusing market. Based on the above, it is very difficult to draw conclusions as to where the market will go during the coming week.

When this happens, it’s often best to drill down into the Wyckoff Wave stocks to see how they are behaving.

1. The Wyckoff Wave is in an overbought position relative to its up trend channel.
2. On a short-term basis eight of the 12 stocks are in a short term up trend. one is in a short term down trend and three are neutral.
3. On an intermediate term basis they are split. Six are in up trends and six are neutral. None of the Wyckoff Wave stocks are in an intermediate term down trend.
4. The Technometer readings are quite interesting. Eight stocks are in an overbought conditions. two are oversold and two are neutral.
5. Two of the Wyckoff Wave stocks are in a positive divergence with their O – P Index. Eight are in a negative divergence and two are in harmony.

In addition, several of the market leaders are either backing up for a possible last point of support or appear to be in a position where the backup will be beginning.

In general, the Wyckoff Wave stocks, while very bullish from an intermediate or long term perspective, do not, as a group, seem poised to make a strong move to the upside, in the immediate future.

The rally that began in mid-November, at point G, has been long, slow and sprinkled with bearish indications that, for the most part, did not come to fruition. It would be difficult to be surprised if the Wyckoff Wave once again surprises.

While the overall market appears strong, from a short-term perspective it does not seem ready to make that final, breakout, push to the upside.

Instead, the Wyckoff Wave may choose to react back towards the highs of the brief N – O trading range. The dangerously overbought Technometer, should then quickly move to oversold. If that reaction happens and is on reduced spread and volume, we may see an important last point of support (the move from point G would be a sign of strength) and the Wyckoff Wave will be in a much better position to rally into new high ground.

If this happens, there would be good short-term opportunities to the upside.

More importantly, the intermediate and long-term bulls, who have been happily counting their profits would have an excellent opportunity to take positions.

This may also be an opportunity for aggressive short-term bears who, if the market begins to react, can take a brief short term positions to the downside. This is a very aggressive, high risk trading opportunity and should be watched very carefully.

For most of us, this is a period of watching and waiting and letting the market answer these difficult and somewhat confusing questions.

The Rally That Keeps On Moving. Will It Stop And, If So When?

On November 16, the Wyckoff Wave completed a reaction to point G and began a rally that has now lasted for two months. Despite numerous short-term indications to the contrary, the Wyckoff Wave has rallied back towards the top of this long trading range. It is now in a position to begin to test the resistance area marked by the lines drawn from point X.

The last two months have been a trader’ s market. There have been no clear indications that would allow intermediate or long term investors to either add to or take new positions. This is because there was no specific confirmation of a new intermediate term up trend.

Instead the market rallied in short bursts and then either reacted or moved sideways in a manner that suggested a reaction was in the making.

The latest of these was the two-week sideways movement from point N as the Wyckoff Wave attempted to penetrate a resistance area formed by the January – July phase of the trading range. As it moved sideways, the Wyckoff Wave’ s Technometer became oversold. We saw negative divergences with both the Optimism – Pessimism and the force Indexes. Once again indications suggested a reaction.

However, on Friday the Wyckoff Wave surprised. It rallied out of the minor trading range, formed between points N and O on good spread and volume. It is now in a position to test the next and final resistance of the trading range.

Will the Wyckoff Wave move through the resistance and make the move from point M a Sign of Strength, or will it finally react back into the trading range? Also, how do short-term traders and intermediate term investors handle this confusing market?

First, let’s look at the short-term indicators.
1. The Wyckoff Wave is in an overbought condition relative to its Technometer and this condition will continue at Tuesday’s opening.
2. The Optimism – Pessimism Index is in a negative divergence with the Wyckoff Wave when compared to points X, Z, B and D.
3. The Force Index is also in a negative divergence with the Wyckoff Wave when compared to points Z, B and D.

This suggests the Wyckoff Wave will have a difficult time penetrating the next resistance level.

However, there are some emerging positive indicators. The Optimism – Pessimism Index which had been lagging behind the Wyckoff Wave is now leading it. This is more positive when associated with the markup phase. However, it should not be ignored.

A look at the 100 Point & Figure chart shows a count of 2, 900 points along the 31,000 line. This is the support area marked by point M. This count gives us three objectives. The first, from point G has already been reached. The third, from point M gives us an objective of 34,000. This would take the Wyckoff Wave back into the 2008 distribution area.

The third, which is halfway between the two and marked in blue, takes the Wyckoff Wave to just inside the lower resistance level. It will be quite important to see how the Wyckoff Wave behaves as it reaches this objective.

While, once more, the short term indicators argue against a penetration of the resistance and a reaction back into the trading range, this does not mean short-term positions should be taken. When the market sends mixed signals and the short-term trader is not totally comfortable, it is best to exit the market and wait for a clearer trading environment to develop.

For a look at the longer-term indicators, let’s go to the weekly chart.
1. In early November the Wyckoff Wave weakened the long term up trend channel that has been in place since 2009.
2. It has now rallied back to test the trend channels support line. The last two weeks have seen decreased price spread and increased volume. This would suggest some supply is coming into the market.
3. In addition to attempting to penetrate the long-term support line, the Wyckoff Wave will also be running into overhanging supply and the resistance area drawn from point C.

It would seem that the Wyckoff Wave would need to move strongly through the resistance if it is ready to break out to the upside. The coming week should help clarify the situation.

Regardless, since the bottom of the last bear market, the stock market has had a strong bias to the upside. Since then, the Wyckoff Wave has rallied by just over 121% or 30% per year.

The trading range that we have been in for the past 10 months has been more indicative of accumulation than distribution. While that needs to be confirmed throughthrough ending action, the bias continues to be quite bullish.

This would lead Wyckoff investors to continue to hold their positions and count their profits. If we see a breakout to the upside, which, in my opinion, is still problematic, new positions can be taken on the Last Point of Support.

Otherwise, if the market reacts, Wyckoff investors can investigate new opportunities as the W through ave reaches the bottom of the trading range.

The short-term trader should follow the axiom “when in doubt, get out”.

For me, this has been a difficult market period. The good news is my long-term positions have grown nicely. The frustration is the difficulty found in anticipating turning points and not having them come to fruition.

The Wyckoff Wave will either penetrate the resistance and breakout of the trading range or it will react back towards the bottom of the trading range. While I suspect it will be the latter, I am not ready to put my short term money where my mouth is.

Two Market Perspectives

Wyckoff investors and traders can look at the stock market with two very different perspectives.

The short-term Wyckoff trader is looking for turning points that will allow a reasonable return during a very short time. This can range from the same day to a week or two.

The intermediate or long term Wyckoff investor is not as interested in the market’ s short term twists and turns, but expects to hold positions that last from between a few months to several years.

The short-term trader tries to anticipate turning points, while the longer term investor looks for confirmation of Wyckoff indicators, before taking positions.

Back in the day at the old Stock Market Institute offices in Chicago, discussing individual stocks was not encouraged. That is because a short-term trader might have a position to the downside, while an intermediate term trader held a long position. Both were correct and both would return a profit, but each person was looking at the stock from a totally different perspective.

Depending on our perspective, today’s market is also sending us different and sometimes confusing signals.

Let’s first look at a short-term perspective.

A week ago Friday the Wyckoff Wave had rallied to point N. As mentioned last week the last three days of the rally were on relatively reduced spread and volume. In addition, the Technometer had moved into an overbought condition and the Optimism – Pessimism Index was in a negative divergence with the Wyckoff Wave when compared with the last high at point L.

This appeared to be a turning point and an opportunity for short-term traders to take short positions in stocks that were weaker than the Wyckoff Wave.

If one anticipates a turning point, the expected market action to follow should also be considered. Supply should command and we should see a positive move to the downside.

The day following point N was on reduced price spread and increased volume. That would suggest that some demand was probably present. The following day was a little better for the bears. The price spread increased, but the volume stayed the same. Some demand came in late in the trading day.

The good news was that the Wyckoff Wave had closed back in the trading range and appeared ready to continue the reaction. That didn’t happen.

Wednesday brought a poor quality rally on  reduced spread that increased volume. We are now three days into the expected reaction and the market has made little progress toward the downside. The market is not behaving as expected. While Wyckoff traders may have small gains, stop orders should have been moved to cover profits and the traders should be poised to exit the market if demand returns.

Thursday was a very critical day. The Wyckoff Wave rallied on increased price spread. While the volume was lower than on Wednesday, it was relatively high. Demand had come back into the market. This was a short term change in character.

The market was not behaving as expected when decisions were made at point N. The disciplined Wyckoff traders closed their short positions, or were stopped out.

The wishers and hopers. The let’s see what one more day brings. The maybe it will react in a few days traders held their positions. Some may have even moved their stops to accept the fact that the market might rally.

Which camp are you in?

What will happen to the Wyckoff Wave on Monday? I simply don’t know. When I don’t know, I don’t want to be a short-term trader.

I do know that the market did not do what I expected it to do at point N. So, until I get a more positive indication to the future short-term direction of the market, I am retreating to the sidelines.

If the market reacts on Monday and successfully test the highs at point N, I may return, but only if I am not chasing a stock.

It is far better for the short term trader to miss out on an opportunity than to lose precious capital.

The intermediate or long term investor is not that interested in either of the short term scenarios. Until they see a positive and confirmed ending action, they are holding existing positions and waiting for new opportunities.

Will these opportunities be bullish or bearish? Rather than anticipating turning points, the investor looks at the overall trend of the market and anticipates what its future direction will be. For this analysis, let’s move to the weekly chart.

As has been discussed in the past, the Wyckoff Wave reached the supply line of its long term up trend at point U and then moved sideways. It has stayed in this trading range for the past 10 months. In doing so, it moved out of the long-term uptrend channel on its reaction to point D. It then rallied and is now testing the channel’ s support line.

If this test is successful, does that mean the Wyckoff Wave will react strongly?

In that scenario, the move from point C down to point D must be considered a Sign of Weakness and the rally back to the support line would be a Last Point of Supply.

Or, is there a scenario that makes point D a spring and is the present rally a Sign of Strength? The weekly chart provides clues in answering the significant questions.

A Sign of Weakness is usually preceded by an upthrust. An upthrust is usually preceded by a Buying Climax. While point U may look like climactic action on the weekly chart, it is certainly not a Buying Climax on the daily chart.

More significantly, the move to point C cannot be defined as an upthrust. Point C brought us a wider spread and strong close. In addition and more importantly, supply did not come into the market. Instead, the Wyckoff Wave experienced a long slow six-week reaction back down into the resistance area (Creek). This is not indicative of ending action and preparation of a move to the downside.

What about the spring scenario?

Just like seeing strong supply come in after an upthrust, strong demand follows a spring. It is taken six weeks for the Wyckoff Wave to rally from point D to point E.

Take a look at the accumulation area marked by points X and H. The low at point H was a beautiful spring. Look at how demand came in and over the next month drove the Wyckoff Wave all the way up to point K. Compare that move to what we are seeing now.

While the spring scenario has a higher probability of success than the upthrust scenario, it is doubtful either would be fulfilled.

If we look at the trading range after point U, there is a tendency to see higher tops and higher bottoms and, most importantly, the individual moves are long slow and basically boring. This screams accumulation.

However, that will only be confirmed by ending action. Right now it would seem that intermediate and long term traders should be content with living in a trading range with a bias to the upside.

This would mean position could be taken at the bottom of the range and held as the market rallies and reacts before we see a final ending action.

Hopefully, these two perspectives have been helpful. Always look at the market from your specific trades perspectives, knowing it may be different from your neighbors. If you are in a short term trading mode, avoid looking at the market from a longer-term perspective and vice versa.

With the acquisition of some excellent video software, I am creating some new videos on how to use the charting service. I am also updating older videos.

The latest video is how to identify relative strength and weakness, when comparing individual stocks to the Wyckoff Wave. If you are interested, just click this link to play the video. http://wyckoffstockmarketinstitute.com/Videos/Relative-Strength-Weakness/relative-strength-weakness.htm

Using the Technometer to Find Turning Points

This week, after successfully testing the halfway point at point M, the stock market, as measured by the Wyckoff Wave rallied nicely until it reached the resistance area marked on the attached chart.

Is the market simply fighting through some resistance or are we about to see another short-term reaction back down into the trading range?

There are several indications that further upside progress will be extremely difficult. One of the easiest and most consistent turning point indicators is the Technometer.

The Technometer is a five day moving average that calculates volume taken from both up and down intra-day price fluctuations or, as we call them waves. It is uncannily accurate in identifying when the market is in an oversold condition and ready to rally, or in an overbought condition and ready to react. It is especially helpful to short-term traders who are looking for minor moves within trading ranges.

When the Technometer is at 50 or above, it is considered to be in an overbought condition. Conversely, a reading of 42 to 39 suggests a mildly oversold condition. A reading of 38 and below is considered quite oversold.

On Friday, the Wyckoff Wave’s Technometer closed at just over 50. On Monday, it will open at a higher level. This, by itself, suggests we should expect the market to react.

In addition to the reduced spread, and on Friday, decreased volume, the Wyckoff Wave is sending us other negative indicators.

Notice how the Wyckoff Wave was unable to reach the supply line of the recent uptrend channel at both points J and L. This is an indication of weakness.

We are also seeing a negative divergence when the Wyckoff Wave is compared to its Optimism – Pessimism Index. Presently, the Waves is higher than point L. However, the Optimism – Pessimism Index is lower. This suggests the effort (volume) is not keeping pace with the results (price). When this happens, it puts the continued advance into jeopardy.

Finally, the Force Index is producing high negative numbers. This suggests that the expected short-term reaction will be, on a short-term basis, fairly significant.

Does the Technometer really provide indications of upcoming turning points? Let’s look at the chart. While every Wyckoff indication should be analyzed when identifying potential turning points, we’ll just stick with the Technometer.

At point A, the Wyckoff Wave was in a fairly substantial intermediate term up trend channel. The day before point A, the Wyckoff Wave’s Technometer registered 56. For the next two days it registered 56 and 57. The Wyckoff Wave then reacted to point F.

At point F, the Technometer was at 37. This is a substantially oversold condition. The Wyckoff Wave then rallied to point I. Three days before reaching point I, the Wyckoff Wave’s Technometer registered 58. This is a dangerously overbought condition. Notice that the Wyckoff Wave made little progress before reacting all the way down to point L.

The final reaction to point L was on good price spread and volume. At the time, many felt the market was experiencing a sign of weakness and we would see a strong move to the downside.

The Technometer sent a different message. Two days before reaching point L the Technometer became oversold. By the time it reached point L it was in a dangerously oversold condition. The bears were wrong. The Technometer was right. The Wyckoff Wave returned to the trading range and ultimately rallied to point X.

In the process, it also penetrated the resistance at the top of the trading range and, in Wyckoff terms, jumped the creek. Again, the Technometer gave us some clues as to future direction. It was not in an overbought condition as the Wyckoff Wave reached point X. This suggested the Wyckoff Wave would “back up to the creek” and put in an important last point of support, before entering the markup phase.

However, as we now know, that didn’t happen. Once again, the Technometer gave us an early warning indication that we were going to react.

After a long, slow reaction that ended at point C, the Wyckoff Wave attempted to rally. Two days before reaching point D, the Technometer sent us an overbought signal. This was especially significant as the Wyckoff Wave was becoming more overbought, at a lower level, than it was at point B.

The Wyckoff Wave then reacted sharply towards the bottom of the trading range, before seeing support at point G.

Once again, the Technometer showed us a turning point. Two days before point G it was already sending dangerously oversold signals. The market then rallied strongly back towards the top of the trading.

It appears that we are beginning to get indications from the Technometer that the Wyckoff Wave is going to react. Will it be right again? Based on its track record, there is a pretty good chance a short-term reaction lies ahead.

With the acquisition of some excellent video software, I am creating some new videos on how to use the charting service. I am also updating older videos.

The latest video is how to identify relative strength and weakness, when comparing individual stocks to the Wyckoff Wave. If you are interested, just click this link to play the video.