Anticipating a Pullback Early Next Week

The market has been in a bullish mode since the mid-November lows.  I expect that bullishness overall will continue into and perhaps past the New Year.  But in any uptrend there will be pullbacks.  I am anticipating a pullback early next week.  In fact, it may have already started.

My Routine

At the end of each week – usually on Saturday afternoon when I have some quiet time after my weekly tennis game, I like to review the week for how well I read the markets, where I fell short, the trades made, trades missed, trades that proved out their probabilities, and those that had losses.  It is a part of my weekly routine.  After that is done, I then start thinking about next week.

The first thing I do in preparing for the coming week is to pull up my weekly chart.  I want to know how the market traded during the latest week compared to the previous few weeks and to see if we are coming into a significant past trading area or price level that could act now as support or resistance.  The weekly chart helps me to see the big picture.  As a day trader, it is easy to get caught up in the noise.  I think of my weekly charts as the bigger-picture perspective that helps keep me grounded.  If you see the weekly chart beginning to show signs of weakness, then you know the daily must follow.  And, when the daily starts to turn, we can get very good intraday runs.  In the way I think about trading the intraday, it all starts with the weekly.

Next Week

I’ve posted the weekly chart of the S&Ps (ES) alongside of the daily.  I’ve circled the last three weekly bars.  If you have been trading the Wyckoff method for any length of time, the shortening of the thrust should jump right out for you.  For those of you who haven’t: note the week just past and how much progress it made both in terms of its high and its close over last week.  Not too impressive, is it.  Shortening of the thrust.

We saw the market stumble a bit on Monday, preceded by a daily SOT.  Selling entered the market.  Wednesday had the highest volume of the week.  It was also the week’s low.  For all that volume, I would have expected a little more umph to the upside – at least a strong close.  Friday has the second greatest volume of the week, but again, a poor close.  Selling on Monday, probably Wednesday, and again on Friday along with SOT on the weekly — I’m thinking pullback.

Ideally, we would see Monday or Tuesday try to surmount last Monday’s high (1424) and fail in an upthrust.  That would be easiest to trade.  We don’t always get the ideal, though.  Friday’s weakness may have put in a lower high.  If so, we won’t see price rally much on Monday.  If this analysis is wrong, then we will see the market rise up and through the 1424 level and not look back.  Given the background, I view that as less likely, but certainly possible.