Market Acts Constructively
The US Stock Market as represented by the S&P e-minis had a constructive week last week. After rallying out of an oversold condition in mid-November, the market pushed up underneath the trend channel at A. It hung there for two days and then on Wednesday flushed out longs who had jumped on board as the market rose aggressively. The shakeout allowed the market to lift higher.
Price broke the downtrend channel the next day and then held its gains on Friday. Also constructive is the close above the last two months’ lows. The monthly chart (not shown) has returned to bullish behavior.
Craziness of the News
In looking at the various blogs, news outlets, and other sources of market information over the past few weeks, I couldn’t help but be struck by the constant effort of the media and others to fit what they perceived to be relevant news to market moves. For example, when the market started falling after the US presidential election, many claimed the market was unhappy with the election outcome and therefore selling off. As the market continued its sell-off into mid-November, the claim was not only is Obama bad for the markets, but the looming ‘Fiscal Cliff’ was causing investors to flee the market in droves. Last week, the suddenly rallies aggressively. Why? Obama hasn’t even been sworn in yet and the US tax and spending issues haven’t changed. Well, they said, it was due to “positive vibes” on the Fiscal Cliff issue. My how quickly things can change. All I can say is, What nonsense!
I make it a very deliberate choice to avoid the news, market commentary and the like as much as humanely possible. No newspapers, no TV, and no checking the blogs and news outlets on the web. It’s just too crazy out there. Tom Williams makes the point that the reporters are well-meaning, but they just don’t know and the insiders who do know won’t tell you. Moreover, bad news is routinely used to flush out markets as an opportunity for strong players to acquire stock or contracts at favorable prices. I spent two weeks with Tom at his home in southern England this summer and we discussed this aspect of trading extensively. Tom’s perspective is forget trying to figure out all that and focus on reading the principles of Wyckoff and VSA as they emerge on the charts. It is all in the charts; it’s never in the news. I agree with his sage advice.
Follow the Wyckoff Principles
We follow market principles as originally described by Richard Wyckoff in his two courses, and by those who followed him, especially Bob Evans, George King, Dave Mathys, David Weis, and Tom Williams. None of these experts look to the news for guidance. It just isn’t there.
The principles we have been following recently include down moves stronger than up moves from mid-September to mid-November; an oversold condition; climactic action; Shortening of the Thrust; change of behavior with the recent rally becoming strong; breaking the downtrend channel; closing above monthly lows; a shakeout. Knowing how to read and anticipate these principles will serve you much better than news. How do you read ‘positive vibes’ anyway?
What’s Next
After making such good progress, we are due for a pullback. Friday’s market action suggests we can see a pullback early next week. Watch for the 1400 level to be tested. I circled this area on the chart. If it goes there and holds, that will be another positive for this market (if it can’t get down to that level and hold higher, that is also positive). We can then look for a drive up to the 1425-30 area (dashed line). There was a lot of trading at this level, so I would anticipate that the market will be unable to get through that area on its first run up there, if it does go there next week. Failure to hold the 1400 level could see the market go back down to the 1393 area or perhaps a little lower for further accumulation.
What a good article.Totally agree.