I just returned from Denver where I spoke on Wyckoff principles at the Traders’ Library Trading Forum. It was great to see friends from the Denver Trading Group again and meet new traders. A terrific weekend of great trading information.
Turning to the market: We are at a very interesting spot in the market’s structure.
Last week in this post, I disscused the fact that the market was attempting to hold its gains and rally higher rather than upthrust the top of the trading range. In Wyckoff terms, this is known as absorption. I have highlighted it on the daily chart. We see this frequently on various time frames in all markets; it is an indication of strength.
The absorption played out as anticipated, and we have rallied up out of the absorption area and up above the top of the trading range (highlighted by the red horizontal lines).
Today, we rallied up into the 1250 area (1252.50 was the day’s high), which as can be seen from the chart, is a significant structural resistance point in this market. The question now is: Will the market continue it’s rally?
Typically, once a market has overcome a resistance level such as the top of the trading range (and the absorption area), it will continue higher. As Wyckoff said in Studies in Tape Reading, resistance is like a dam, and engineers don’t build dams one right after the other. So we would normally expect the market to continue higher.
We are, however, coming into the area where demand broke down and selling overcame buying. I’ve highlighted this area in the chart, and it is significant. We want to watch the price and volume very carefully over the next few days. The past two days have relatively light volume. Such light volume is unlikely to be sufficient to drive price through this heavy supply area (think effort vs. result). Nevertheless, we are seeing prices close firm. Therefore, we have to give the edge to the buyers, at least for the time being.
If aborption is a new concept for you, or framing the market out in this way to undestand it’s structure and how to read what the market might be attempting at such critical points is of interest to you, then you might want to check out Chart Reading Mastery. This is an eight-week course on the best of the Wyckoff Method and its application in modern markets. It starts on Wednesday night and we still have two slots left. You can learn more at this link below:
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