Thursday saw the market fall out of the small trading range formed by the narrow range days on Monday & Tuesday. We saw a typical Wyckoff UpThrust (UT) followed by an increase in supply on the down wave A as revealed by the Weis Wave. Then, the market fell hard (wave B) with a large amount of selling starting in the overnight market and bleeding non-stop into the US session Open. The large move down caused a consolidation for the remainder of Thursday and Friday.
But note what happened on Friday: Another UT and increased supply on the way down (wave C). While the market may try to rally a little (the daily shows some downside SOT on large volume), it is unlikely that Friday’s 1117.50 level (basis Sep ES) will hold.
The lower levels should be obvious. 1103 is the August 11 low, and, of course, the 1077 low of August 9.
The Weis Wave has been tracking this market very well and has been offering excellent trade opportunities across the various time frames. The plug-in and a two-hour webinar by David Weis on how to use this very special tool is now available to traders. You can learn more here: Weis Wave.
If you don’t trade UpThrusts, you are really missing out – especially when the market has been hit with selling, as it has lately. This is one of the classic Wyckoff Trades. You can learn more about this trading techniques and all its nuances here: Wyckoff UpThrust.
This is definitely a tricky area of the market to read. I wonder if we’re in a shakeout/re-accumulation phase, but I’ve only been trading for a little over the year, so the last time I saw any price action like this was last summer, and I wonder if that biases me.
Still, I did notice that the past couple days that we’ve been coming back down, the market has come back down on less volume than it did the other week, so perhaps this is a secondary test? Also, it looks like Friday’s volume was nearly as much as Thursday’s, but Friday’s range is only about 2/3 of the range on Thursday.
Doesn’t mean we can’t go lower still, of course. I’d like to see some kind of a test bar put in to make me feel a little better about this idea. And even if we did rally, I’d still wonder if we would need to come back down to these levels again to test supply. I just can’t help but notice how bearish the news has been, and so that makes me cook up these contrarian ideas. 🙂
This is also something that got my attention – http://www.reuters.com/article/2011/08/16/us-investment-merrill-idUSTRE77F30O20110816 It talks about how a lot of investors are pulling out of equities, and I remember reading the same kind of article last summer, too. It makes me think of how Wyckoff talks about the transfer of stock from the weak holders to the strong holders.
One other thing that’s interesting is this … “Investors slashed equity holdings in August and boosted cash levels to their highest since March 2009 … ” Anyone who trades certainly recognizes March 2009 and its significance.
Anyway, just some ideas. Guess we’ll know more soon!
We are oversold here and may see a rally. The high volume and SOT from Friday suggests that we will. The overnight market fell lower to 1111.25, and then pulled back up above Friday’s low. We will see what kind of rally the market can put together. Overall, though, I would not view this as a shake out and time to buy. The higher time frames show that the market has just broken from a large trading range. In Wyckoff terms, it’s a fall through ice. Odds favor more downside to come.