Reaction Off The Highs

The Wyckoff Wave spent the first two days of last week trading in a narrow range, until Wednesday’s strong rally to point J.  Then it proceeded to give up some of the gains at the end of the week.  Volume was slightly higher on Wednesday’s rally, but still not coming in strongly.

The Technometer was extremely overbought going into Wednesday’s rally and possibly helped stop the rally from materializing into much more than a one day advance.  The Technometer has pulled back to below a neutral reading.  Volume did not come in to support the rally, and because of this we have had a pullback in the last two days.

Volatility has continued to contract, and we are at historical low levels.

The S&P and Nasdaq Indices were both up approximately .75% for the week.

The Wyckoff Wave once again rallied early in the week to a new high for the move.  Thus far that rally ran into some resistance, and considering where E-mini’s are trading Sunday night, we have almost erased Wednesdays gain.  We still expect further consolidation this week.

The Optimism – Pessimism Index lagged on Wednesdays rally, which was the first possible sign the rally could meet resistance.  The O-P broke its short term uptrend on Thursday, and should have more downside in the immediate days ahead.

The Force Index did not support Wednesdays rally as well, and the positive reading of 120 stopped the rally.  The Force is now in a downtrend and trading at -115.  This should continue to provide downside pull in the days ahead.

We still have shorts on various stocks that continue to show relative weakness versus the general market.  For our ProTraders we were stopped out of our KO short but still short GE, SBUX, CAT, PX.  Caterpillar has been trading much weaker than the general market, and the news of the FBI at its door, kept the stock under pressure.

 
The bond market traded down sharply on the week, but is still trading above the previous lows.  We are oversold and we are still long looking for the TLT to resume upside progress.  We show our long entry level with the blue circle below.
 

Good Trading,

Todd Butterfield