Wyckoff Time

In trading and speculation we are all on the clock, the market clock. At times the
market clock spins quickly and at other times it crawls. When a trend is unleashed time
seems to move effortlessly. Time slows down when the market makes no progress
while in a long drawn out trading range. The Wyckoff Methodology can help to tell
what time it is in the market. If we know the market time we know how to conduct our
activities. Is it time to be patient and watch? Is it time to stalk a trade? Is it time get
busy and put trades on? Are we holding long (or short) while waiting for the conclusion
to the trend? And then are we stalking the market for the time to conclude our trade
and take profits? In the cycles of the markets there is a time for all things. Market
wisdom is to know what time it is in the markets and act accordingly.
Borrowing from the conversation started in the blog posts (click here and here for a
link) of January 8th and 16th, 2016, lets continue the case study of the Dow Jones
Industrials with an emphasis on how Wyckoff would frame the unfolding of these
market conditions. We counted a PnF distribution with a price objective of 15,700 to
15,500. In Wyckoff we look for evidence of stopping action in the vertical chart as a
price objective is approached. Wide price bars and very high volume took the $INDU
almost exactly into the 15,500 price objective. The close on the low day was above the
mid-point of the days range showing quality demand. We recognize this to be the
initiation of stopping action (at least temporarily) and the beginning of a trading range
that is either Accumulation or Redistribution. The downtrend is over for the time being.
After labeling this low a Selling Climax (SCLX) we expect a short and sharp rally called
an Automatic Rally (AR). After drawing a horizontal line at the low of the SCLX and at
the peak of the AR, a trading range is defined. A Wyckoffian expects most of the
upcoming trade activity to take place within and around the Support and Resistance
established by these lines.
It is now time to expect a swift downtrend to be turned into a volatile, but trendless,
trading range. Wyckoffians will use the PnF price targets and the rapidly declining
prices to cover some, or all, of their shorts (if they are inclined to be short). And then to
study the unfolding trading range activity to determine the next low risk trading
opportunity.

Once a PnF count objective is reached evidence of stopping action in the form of
Preliminary Support (PS) and climactic activity (SCLX) is sought. That is what
happened here. The SCLX is the beginning of the process of preparing for the next
move. Building a Cause is the ebb and flow of prices between Support and Resistance
and this builds a PnF count for the next price movement of substance. Volatile price
swings build count quickly, as is the case here, and this can go on for a long time. We
turn to the vertical chart to help determine when the trading range becomes a new
trend.

(click here for active version)

We draw Support lines under the SCLX low and above the AR peak. This is the outer
bounds of the trading range. Price will mostly trade within the bounds defined. The
character of price is that it will reach one extreme and then, abruptly, return to the
other boundary. Note the Secondary Test (ST) low and the rapid reversal to the top
with a three day rally. The drop from the AR to the ST was a fast five day decline. The
volume expanded on the decline which is evidence of the presence of supply (this high
volume leads us to conclude that further attempts to decline to the support line are
likely). If this structure is Accumulation we want to see future declines in the trading
range occurring on lessening volume. This tells us and the Composite Operator that
sellers are exhausted and the supply of stock has largely been absorbed.
For the bulls there are two major scenarios to script here. The first is that the $INDU
turns down from the area of the AR and attempts to return to the SCLX low. On these
declines volume diminishes on balance and the daily price ranges are generally
narrower than on the decline to the SCLX and the decline to the ST. This will be
evidence of selling exhaustion. Also, the price may only be able to return to the midpoint of the trading range and make a Last Point of Support (LPS). This would be
bullish and a place to initiate trades (often the LPS comes in at about the same level as
the PS). Recall that PnF counts are generally taken from the LPS to the PS (and
sometimes to the SCLX).
The second bullish scenario is the $INDU jumps the AR level without pulling back into
the range. After Jumping it consolidates for a brief period of time and resumes the

uptrend. Old Resistance becomes new Support and so we look for a backup into the
old resistance (This backup is labeled a BUEC). This is a place to enter a trade.
The bearish scenario is that the current pause is Redistribution. We know from our
prior studies that volatility tends to increase as Redistribution advances. Declines from
the top of the trading range to the bottom are quick and accompanied by large volume.
Supply is present and the C.O. is selling, not buying. At the Resistance level look for
brief breakouts (called Upthrusts) that fail quickly back into the trading range. When
the Support line is broken and price cannot lift back into the trading range the
Redistribution is nearly complete and a new downtrend is imminent.
We are treating this juncture in the $INDU as a real time case study. So for now we are
expecting a continuation of the trading range and have the broad scripts above to
provide us with action points and steps for the next phase.
All the Best,
Bruce