Wyckoff Power Charting

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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Range Bound NDX

Mr. Wyckoff called his charting methodology ‘Tape Reading’. Determining the present position and probable future direction of prices from their own action. Prices have tendencies which can be detected on the charts. Context is the idea that recent price action will provide clues about what to expect next. This is at the core of how to use and profit from the Wyckoff Method.

In our Market Outlook and Stocks Review webinars (Wednesday 3pm PDT), Roman and I work with our attendees to develop mastery around anticipating the tendencies of the markets. One of the most valuable mastery skills is identifying (early on) when a trending market becomes a ‘Range Bound’ market. In the June Market Outlook sessions, we began observing a ‘Change of Character’ in the Nasdaq 100 Index. This change of context, we concluded, would have consequences for the action of this index for the weeks, and possibly months to come. Let’s review how the Wyckoff Method informs our analysis and tactics with a case study of the current position of the NASDAQ 100 (NDX) Index.

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Wyckoff the International Language

Golden Gate University’s technical analysis courses are in demand from students around the globe. The Wyckoff classes that Dr. Pruden and I teach welcomes students from many countries. These students, applying the Wyckoff Methodology, present stock case studies to the class. Often the international students highlight stocks listed on their home country exchange. It becomes evident to the entire class that all auction markets, everywhere, are subject to the principles of the Wyckoff Method. The Composite Operator (CO) influences that produce the effects of Accumulation, Markup, Distribution and Markdown are at work throughout the world. Students soon learn that Wyckoff is an international language. Put Wyckoffians, from the four corners of the world, together in a room and they soon discover they are speaking the same language using charts.

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A Dollar for Your Thoughts

The dollar has been sinking since the end of 2016. Recently there has been much attention and commentary from the financial community on the impact of this weakness. A falling dollar typically helps U.S. exporters by lowering the price of their goods in world markets. A lower dollar imports inflation by raising the price of the many goods manufactured overseas and sold in the U.S. Rising inflation can have an effect on the level of interest rates. These effects typically manifest over many months, and sometimes years of currency weakness. If there is a change in the winds for the currency markets, it is just beginning. Let’s have a Wyckoffian look at the dollar and try to sort out the present position and probable future direction of this important currency.

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Campaigning Gold

The Wyckoff Method is designed for the campaign oriented trader. Discipline, patience and vision are the skills required to conduct a bull or bear campaign from start to finish. Wyckoff provides outstanding tools for executing on such a trading orientation. Point and Figure offers a technique for estimating the extent of a price move. Trendline analysis has unique methods for examining and gauging the quality of the unfolding trend. Accumulation and Distribution analysis helps to determine the readiness of price to emerge into a fresh new uptrend or downtrend. Combining these skills makes for a sturdy approach to campaign a trend from start to finish.

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Point & Figure Diary

Regular readers have been following the epic saga dating back to 2011, when Dr. Hank Pruden published his Point and Figure (PnF) count for the new bull market. This count projected to a range of 17,600 to 19,200 for the Dow Jones Industrial Average ($INDU).  When this objective was met we said: ‘But wait, there is more’. Almost exactly a year ago, in this blog, we revisited the original Accumulation and found that an additional count could be added to the PnF price objective.  The 17,600 to 19,200 count was very useful as the $INDU was stopped in this range for more than two years. That range produced a Stepping Stone Reaccumulation PnF count.  The larger Accumulation count and the new Reaccumulation count approximately confirmed each other (click here to review these PnF charts). The cluster of count objectives target 22,000 to 24,500. As we move toward these price targets, new Reconfirming counts continue to be generated. This brief update is to illustrate a new count that arrived in the month of June since our last post on this topic (these PnF counts can form quickly).  Links to the prior posts are below.

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FANGtastic Trendlines

The Wyckoff Method for constructing Trendlines is unique. They inform our analysis and support sharper tactics.  Trendlines and Trend Channels bring a chart to life. We have used significant amounts of ink drawing and discussing trendlines in this column (below are links to prior columns on Trendline construction and analysis). Continue to practice identifying the stride of the advances and declines on your favorite charts using these techniques.

Each Wednesday afternoon, Roman Bogomazov and I conduct a Market Outlook and Stocks Review session online. We analyze the major market indexes as well as oil, gold and other futures contracts and leading stocks from a Wyckoffian perspective. Our goals are to strengthen traders’ real-time processing of market conditions, including building alternative price scenarios and crafting the best trading tactics under each scenario. To learn more about these sessions, please click here.

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WFM Is Swallowed Whole

Whole Foods Market agreed to be acquired by Amazon.com, Inc. on June 16, 2017. This ‘disruptive’ move by Amazon.com roiled the retail stocks, which were already sagging badly. The price drops extended throughout the retail brick-n-mortar stocks. Investors in these retail stocks feared that AMZN would strategically leverage the acquisition with a physical presence at every WFM store location.

As Wyckoffians our mission is to discover and follow in the footsteps of the large Composite Operator (C.O.). The C.O. conducts campaigns in stocks that have the potential to move in a sustained and significant upward manner. They help this process along by absorbing a significant amount of the available shares of stock (during Accumulation) and removing them from the market. The C.O. community, in aggregate, will wait for much higher prices before they will be willing to sell any of their shares. With stock in the strong hands of the C.O., it means a marginal increase in demand will dramatically lift a campaign stock into a new uptrend. Wyckoff’s approach was to look for the footprints of the C.O. in the price and volume action on the vertical bar chart. And next, to estimate the potential extent of the move with Point and Figure analysis.

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