Something for the Longer-Term Trader

We tend to focus on the small, intraday time frames on this blog.  That’s natural, because that is the bulk of my trading.  I received a request, however, for a chart of the Weis Wave on a weekly basis, which I sent to the trader making the request.  This request came at an opportune time for me because of some personal changes that are likely to happen in the next week or so that will affect my trading.  These are positive changes, to be sure, but they will take me away from day trading — at least for a while.  In any event, I thought readers might like to see the broader perspective offered by the Weis Wave.

Created by David Weis

David Weis created this indicator based on the work of Richard Wyckoff.  Students of the Wyckoff Method may know that Wyckoff kept point and figure, wave, and volume-by-figure charts.  The Weis Wave cleverly combines all of these into one chart.  It is a highly useful tool.  David did a webinar for us explaining how he developed the Weis Wave and also detailing it’s many applications.  You can learn more about the Weis Wave at the link at the end of this post.

Weekly Application

Here is a weekly continuation chart of the S&P 500 futures with the Weis Wave superimposed showing both waves and the all-important wave volume.  This is set to highlight at least a 5-point move on a close-basis (i.e., each wave is 5-points or greater).  I’ll show only some of the basic uses here.  Much more detailed applications are found at the link below.

1. Starting in early 2008, we can see both the wave and the wave volume increase to the downside.  Supply, or selling, has clearly entered the market.
2. Almost six months goes buy, and we can see from both the wave structure and the wave volume that buyers are weak.  A weekly Hidden UT (daily UT) puts longer-term traders into the short side of the market.
3. Supply
4. No real demand
5. Huge downside volume and down wave.  Savvy traders skilled in the Wyckoff Method are thinking Selling Climax.
6. A rally on no demand
7. Strong Sign of Strength as we see a clear change in behavior in this market.  Buyers have stepped in and have done so in force.  We see it clearly in the wave structure and the wave volume.
8. Pullbacks that create smaller down waves and lower down wave volume are opportunities to establish long positions.  The rest of the market was scared that the bear market would resume.  They were calling 7 a “bear market rally,” but the change in behavior was clear thanks to the Weis Wave.
9. Continued strength on the way up, but buyers show a bit of exhaustion.  The pullback at 9 shows an increase in supply, which warns us to be cautious.
10. Demand remains in control, but large volume after a lengthy move could be problematic.
11. The pullback into 11 shows no significant supply.  Note how the down wave volumes did not increase over the down volume at 9.  I remember pundits calling for a big down move and resumption of the bear market (still in their minds!) because of a head & shoulders pattern they all saw.  Right.  I wrote about this for the MoneyShow.com.
12. Demand comes back in.
13. Supply is showing itself.  A warning.  We look to the next rally.  Can you see the no demand?
14. More evidence of supply.
15. Again, no demand in the wave structure and volume.  This led to the ‘Flash Crash.’  Note well: I’m not saying that the Weis Wave predicted the so-called flash crash, but it did give clear, readable signs that a down move was about to take place.
16. Downside volume starts to dry up.
17. Demand returns
18. Selling abates.
19. And here we are today with demand in strong control.

Pretty useful tool.  We are very fortunate that David has been willing to share this incredible analytic instrument with us.  You can see more examples of the Weis Wave — including use in the FX markets — at this link:

the (incredible) Weis Wave.