On Tuesday, the US Stock Market, as represented by the S&P 500, put in a new high for 2012 at 1426.68 (SPX – S&P cash index). This is the highest level since May 2008. It then sold off for three days. On Friday, it was oversold. I was in a live trading session with David Weis, Gavin Holmes, Steve Philips and Ken Yee. Looking to be a buyer, a nice Wyckoff Spring set up sparking a good rally and several points. If I can find the time this week, I’ll post the trade in a separate post.
Potential Wyckoff UpThrust & Rumblings of War
Although we have a new yearly high this week, we also have resistance from the April highs. The rally on Friday was strong, but it did not recover enough ground to close above the April high or even last week’s close. This puts the market into a potential Wyckoff UpThrust position. An upthrust occurs when the market rallies above a previous resistance level and then returns to close below that level. It is too early to tell whether this will ignite a significant sell-off in the days and weeks ahead or we are just seeing some profit-taking before moving higher.
The sell-off this week brought out more intraday supply than recent weeks as seen in the Weis Wave volume. Nevertheless, the downside volume was not particularly significant. Friday’s rally was decent with increasing upside wave size and volume. We saw good demand come back in.
Please do be extra cautious in the days and weeks ahead. Although we want to stay as objective as possible and avoid trying to interpret news, it is hard to ignore the war rhetoric coming out of the Israeli government against Iran’s nuclear activities. Traders will need to be on their toes in the weeks ahead. Use hard stops – especially for any long trades. If fresh conflict does erupt in the Middle East, its likely we won’t know about it ahead of time. If the market falls because of sudden Middle East activities, it may free-fall a bit making it very difficult to exit longs gracefully.
Monday’s Game Plan
The Middle East aside, we are likely to see some follow-through from Friday’s rally. A pullback into the 1405 (basis ESU12) area could set up a long opportunity, depending on the price and volume action, should the market pull back into that level. If the market pulls back into and holds the 1405 level, then a break of the downtrend channel is likely. This could set up a push above Friday’s high and into the 1418 high from Wednesday. Should the market reach the 1418 level, we want to watch the action carefully, as this is a known supply area. The market could easily stall any rally here.
Market action early this week may also give us insight into the potential weekly Wyckoff UpThrust. You can learn more about The Wyckoff Upthrust and how it sets up at this link: Wyckoff UpThrust. It was a Wyckoff UpThrust on the higher time frames that ignited the 2008 Bear Market. It sets up routinely on the intraday charts, as well. It is one of my favorite trades.
Hi Gary, Is it possible that Friday is a resurrection bar?
David,
Not quite on the ES. It would have to close at or above yesterday’s high. Nevertheless, it was a strong day. It does on SPY, but i watch ES as it is more complete because it includes the overnight trading, which SPY does not.
Gary
I should mention that I was looking at cash market EFT spy.
May I ask what a resurrection bar is?
David
It is a bar that goes underneath yesterday’s low and then closes above yesterday’s high after a strong day down in an uptrend. It indicates high odds for continuation of the trend.