Wyckoff Power Charting

Crude Oil Runs with the Bulls

Crude Oil lends itself to Wyckoff Analysis and has the capacity to trend for long periods of time. Take some time now and review a case study on the long swings for this important commodity (click here for the study). Note how well the Point and Figure charts have been working at generating accurate price counts. A worthwhile practice is to review the price history of the instruments you are trading and the precision of the PnF counts in these prior swings. From these studies, you can learn the behavioral tendencies of prices and nuances in counting characteristics.

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Tesla Recharging?

Tesla is proving to be an excellent ongoing case study. We suspect that the Composite Operator (CO) is very active in the electric automobile manufacturer. Please take a few minutes and review two prior posts; ‘The Point and Figure Distribution Paradox’ (click here) and ‘Shorts Find Tesla Shocking’ (click here). In each study, Point and Figure (PnF) analysis lit the way to important turns in the stock. Also, a study of the Reaccumulation area revealed the conclusion of the trading range and the emergence into a new uptrend. PnF counting of Segment 1 of the Reaccumulation generated a target of 339.48 to 377.20. A sharp Phase D/E rally went straight to 386.99 where a high-volume climax stopped the advance. This was a terrific rally from 180 and a classic PnF study.

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NASDAQ Composite. Trick or Treat?

Recently we studied the NASDAQ Composite ($COMPQ) as it appeared to be on the verge of jumping into an uptrend after building a Cause. Now the $COMPQ is within one box of the minimum PnF count of our prior study ‘$COMPQ Up Close’ (click here). We evaluated two trading counts employing intra-day PnF charts ranging from about 6,730 to 6,912. Last Friday’s price surge puts the $COMPQ at a critical juncture. As prices approach PnF objectives, Mr. Wyckoff would advise to ‘Stop, Look & Listen’ to the market to determine its probable future direction. And not to jump to conclusions about the end of a trend as objectives are being reached. Now that our prior PnF counts are near, let’s revisit the NASDAQ Composite and put a new twist on the analysis.

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GE's Wild Ride

General Electric (GE) is a venerable old company in the Dow Jones Industrial Average. It was formed (Thomas Edison was the most famous of its founders) in 1892 and in 1896 it was among the first 12 stocks in the newly formed Dow Jones Industrial Average. Now GE is the last remaining of the original Dow Jones Industrial stocks, and it continues to be among the dominant industrial companies in the world.

XLI, the Industrial Select Sector SPDR Fund (GE is a major component), has been among the sector leaders of the last year. Meanwhile GE has been on a wild ride that has veered significantly from XLI and the Dow Jones Industrial Averages. Let’s focus a Wyckoffian lens on the GE stock chart.

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Dear Point and Figure Diary

Dear Point and Figure Diary,

As you know, I made an entry into your pages on July 15th of this year (click for a link). At the time, it appeared that two Reaccumulation Point and Figure Counts (PnF) were stacking up. This suggested another rally phase ahead in the Dow Jones Industrial Average ($INDU). I tend to be conservative in my counting, and that was the case then. But, after making this diary entry, in the second half of July additional columns materialized and increased the count objective. This spurred me to reassess the prior (and bigger) count (March to June period). In the PnF below are the updated count objectives and a third Reaccumulation count.

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Chemistry Experiment

Two strong sectors in September were Materials (XLB) and Industrials (XLI). During the second half of a business cycle expansion these themes typically do well, and that is the case here. The economy has begun to expand at a faster rate. These industries develop pricing power which allows them to raise prices for their goods at a faster rate than the general economy is growing. These companies now have ‘leverage’ in their business models which make them particularly attractive to investors as the economic cycle accelerates.

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Group Dynamics

Let’s have a peak at some interesting sectors. At times, sectors can tip us off to the motives of the market. Sectors and Industry Groups have a general tendency to be either early, coincident or late business cycle beneficiaries. This business expansion has certainly been a long one and it appears to have life left in it. We can often tell where we are in the cycle by which sectors are strong and leading, and also by the sectors that are lagging behind.

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$COMPQ Up Close

The NASDAQ Composite ($COMPQ) has consolidated since early June. Two very prominent Buying Climax peaks arrived, one in June and the next in late July. They are labeled on the vertical chart and the Point and Figure chart. This has slowed the advance of the $COMPQ to a crawl. Meanwhile two well formed Reaccumulation structures have developed. Which generally means they can be evaluated and Point and Figure counts taken.

Currently the NASDAQ Composite has returned to the July 27th BCLX peak. This Resistance level is in force and holding the index back. Provided that it can break out, there are two PnF price objectives that confirm each other. Let’s drill into this recent price structure and see what is going on.

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Dr. Henry O. (Hank) Pruden 1936-2017

Technical analysis education suffered a great loss with the recent passing of Dr. Henry O. (Hank) Pruden. A consummate educator, in 1976, Hank combined his incredible capacity for inspiring students with his personal passion for Technical Market Analysis. The result was the very first graduate course, at an accredited university, in the study of markets using chart analysis. Dr. Zahn, Dean of the Business School at Golden Gate University in San Francisco, said ‘Let the Market Decide’ when Hank proposed this innovative new graduate course. Hank’s electric teaching style and unique curriculum made this class an instant hit. The classroom would fill up every semester and students would take the class again and again.

In 1987 Hank took a sabbatical, recharged his batteries, and came back stronger than ever. Hank and I collaborated on the creation of a new class based on the Wyckoff Method (which we team taught). Hank then developed an entire Technical Analysis Certification Program. Students could earn a certificate in Technical Market Analysis or take these courses in conjunction with their M.S. degree.

Dr. Pruden was a prolific writer publishing many papers on technical analysis and peak performance in trading. We have linked to a number of his articles here and hope to make more of them available in the future. In 2007, he published his seminal work “The Three Skills of Top Trading” (Wiley). In it we discover Dr. Pruden’s view of the essential qualities of the consistently successful trader. Dr. Pruden designed the curriculum of the courses at GGU to reflect this world view. In his personal development as a complete trader he came to understand that trading success depends on being competent in these three skills of top trading. His goal was to have every GGU graduate be capable in these important skills. And to have every reader of his book be on the path to trading mastery. His mission was to have every student become the complete trader.

Dr. Pruden is one of those rare people who touched the lives of many in a most personal and positive way. To honor his life and commitment to others, let’s step forward and strive to be the very best complete trader possible. Hank believed we were serving others by following our passions and doing our very best work. Hank showed us how to touch the lives of others through the metaphor of trading mastery.

Celebrate Hank’s life by viewing these two videos:

View a brief bio of Dr. Pruden’s life here. This video was shown at the 2013 International Federation of Technical Analysts (IFTA) Annual Conference in San Francisco when Dr. Pruden received the IFTA Lifetime Achievement Award.

(click here for a link).

 

Dr. Pruden’s last appearance was a video presentation at the Best of Wyckoff 2017 conference in August. The title of the talk is: Using P&F Charts to Find the Present Position & Forecast the Probable Future Trend of U.S. Equity Prices: Applications of the “Wyckoff Law of Cause and Effect”. Thank you to Roman Bogomazov at wyckoffanalytics.com for generously making this video available for all to see.

(click here for a link).

 

Working up WDAY

The Wyckoff Method is well suited to the concept of campaigning stocks. When a campaign works, a stock may be held for months to years while participating in a major uptrend. Mr. Wyckoff’s goal was to hold the campaign stock until the chart (tape) indicated selling by the large informed interests (Composite Operator). 

In this post, we will study the elements that go into identifying an emerging campaign. The idea of conducting a campaign is to get onboard an emerging uptrend and then to stay on it while the tape suggests the trend is rising. Here we will look for the elements of a campaign trade in the case study of Workday, Inc. (WDAY). In future posts, we will explore how campaigns often end. Here we will consider how they start.

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Transports Hit the Wall

The ‘Dow Theory’ involves the study and comparison of the Dow Jones Industrial Average and the Dow Jones Transportation Average. When both averages are in ‘lockstep’ in a major uptrend, the market is said to be in a Bull Market. When both are in a downtrend, a bear market is in force. For more on the history and use of the Dow Theory take a minute to read the post ‘How Now Charles Dow? (click here for a link).

The Dow Jones Transportation Average ($TRAN) is often a leading indicator and can tend to turn prior to the Dow Jones Industrial Average ($INDU).  The Transports peaked in the last quarter of 2014 and then traced out Distribution. By the end of the first quarter 2015 a downtrend for the Transports was in force that would persist for the remainder of the year. The $INDU continued to form Distribution while the $TRAN was racing downhill. See more detail on this prior period by clicking the link above.

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