Wyckoff Power Charting

Wyckoff Doodles

When markets become dull and listless, Wyckoffians tend to doodle. Currently equity markets seem to be marking time while waiting for the results of the presidential election. The best way for the Wyckoff Nation to prepare is to keep reading the tape (in the form of chart analysis). One of my favorite activities is to doodle on the charts by drawing trendlines.

These lines can bring a chart to life and illuminate possibilities that would otherwise remain hidden and obscure. Doodling is best done on charts that you typically do not spend much time studying. Longer term charts are ignored in many cases. Recent posts have shown the value of these very large timeframes for anticipating big moves.

Continue reading "Wyckoff Doodles" »

Does Lightening Strike Twice?

The Wyckoff Method is a trend following and trend management system. It seeks to identify the pre-conditions to the emergence of a rising (or falling) trend, with the intention of participating in that trend for the duration of it. The Method is timeless and is often used for other means, such as trading range scalping and option trading. In keeping with the prior post, we will scale out to the larger timeframe and discuss the value of Wyckoff context and how one timeframe can speak to what is happening in others.

Every bull market has a mega-leadership theme. In the current cycle, an epic uptrend took place in biotech (we will study the IBB as a proxy for the biotechnology industry group). Can Wyckoff help us find these large trends and help us manage such trends? The big returns reside in the big trends and the Composite Operator fully understands this principle.

Continue reading "Does Lightening Strike Twice?" »

Wyckoff Nation

In the Wyckoff Nation we appreciate how the Wyckoff Method provides context. This is an advantage unique to this approach of chart analysis. We have learned that a process unfolds during the formation of Accumulation and Distribution. The perspective of context follows from becoming intimate with the nuances of this evolution observed on the charts. This edge develops into mastery. In this blog, and in your individual practice, we are devoted to raising the skills of our Wyckoff Nation.

When we tackle the analysis of a stock it is valuable to follow a process. A process has multiple benefits. When evaluating a stock a good process will make for a more thorough analysis. It will provide a viewpoint that will minimize the potential to make an erroneous evaluation. It will improve the likelihood of selecting the best candidates. Also, with time, we become more efficient at researching candidates therefore covering more ground.

Continue reading "Wyckoff Nation" »

Wyckoff Bonding

The US Treasury Bond market is largely dominated by the activities of the Federal Reserve Bank. For seven years the Fed has maintained a policy of zero to one quarter percent interest rates. In December 2015 the Fed raised the Fed Funds rate to a range of ¼% to ½%, and since that time they have taken no action. In addition, the Fed is a major buyer and owner of US Treasury Notes and Bonds.  With this in mind, is it possible to evaluate the US Treasury Bond market with our Wyckoffian tools to make a cogent and useful conclusion?

With interest rates near the zero bound, small changes in rates can result in large swings in bond prices. Interest rates can rise a modest amount and result in large declines in the price of the bonds. Therefore the risk of owning bonds (the longer the maturity the more volatile) could be high. Now the Fed is indicating the intention of raising interest rates in December. The pressure seems to be building in the economy for interest rates to climb. We should pull out our Wyckoff Toolbox and get to work on bonds. Being a Wyckoff tape reader may be the best method for navigating the bond market in the years ahead.

Continue reading "Wyckoff Bonding" »

Wyckoff Chartfest

In the glow of the great ChartCon event, I am simply at a loss for words. It was a festival of charts and technical analysis. Being in the company of these super talented (and legendary) technicians was an experience. I am sure this vibe was oozing out of your computer as it was mine. I am looking forward to replaying all of the presentations. The charts are always telling a story, let’s have them do the talking this week.

Continue reading "Wyckoff Chartfest" »

An AAPL for Your Thoughts

So many important events happen in the fall of the year; school starts, football season begins, new television programming is introduced. But, for many, the momentous event is the reveal of the latest Apple iPhone. This year the pundits had a collective yawn over the new features of the iPhone 7, but the preorders were record setting, and very quickly the initial inventory was sold out. There is only one thing a Wyckoffian can do when their iPhone order has been delayed; evaluate the Apple chart (of course that is the Wyckoffian answer to nearly everything).

We must always keep in mind that markets are a discounting mechanism. The tendency of the market is to look out into the future and anticipate the important changes coming. This discounting phenomena is why Mr. Wyckoff counseled to read the motives and actions of the large interests by their conduct on the tape. As we discussed last week, this is best done by interpreting their footprints with the study of price and volume on the vertical bar chart. Was it a surprise to the large interests that Apple Inc. had such a favorable consumer response to their latest iPhone offering? Let’s consult the charts for some clarification.

Continue reading "An AAPL for Your Thoughts" »

Tracking Big Footprints

Two of the most elusive and rare phenomena in the world are; 1) a Big Foot (Sasquatch) sighting and 2) evidence of the Composite Operator.  In both cases we start by tracking their footprints. By stalking and following these footprints we hope for an infrequent sighting of these elusive creatures. In Big Foot’s case we look for actual tracks in the woods of their rather oversized feet. With the Composite Operator, the tell-tale tracks are discovered in the characteristics of price and volume. Both Bigfoot and the Composite Operator are widely considered to be fictitious. And while the sighting of Bigfoot might win a bet, the identification of the presence of the C.O. can lead to profitable trading.

The Composite Operator is a heuristic (a useful fiction). The C.O. is an aggregation of the trading activities of numerous, very large, and highly skilled stock market operators. As a group they can and do shape trading in the markets. When they conduct a campaign of Accumulation or Distribution their activities can be seen in the charts. Mr. Wyckoff counseled to learn how to identify and follow the activities of these large and expert operators. The Wyckoff Method provides the tools and skills to track the activities of the Composite Operator.


                                               (click on chart for active version)

 

Chipotle Mexican Grill is a highflying stock that recently has fallen out of favor with the investment community. Note the long downtrend in CMG that began in August of 2015. High spikes of volume on price weakness in November, December and January are signs of massive institutional and public liquidation. Year-end 2015 selling from 580 to 400 is Climactic in price spread, volume and duration. An Automatic Rally (AR) lifts CMG back from an Oversold condition (falling below the trend channel). We now can draw a Support line at the low of the SCLX and the peak of the AR. Note the volume on the AR rally. Very high volume is a sign of the Composite Operator’s presence. The rally to the Up Thrust (UT) is on much lower volume which means the C.O. is not sponsoring this stage of the rally. The UT is likely the top of a very wide Accumulation range, and where a Resistance line is drawn. Short sellers could sell the mid-March test of the UT peak with the idea that a new leg of the downtrend could start from here and return all the way to the Support line. In late April a gap low is a classic place to cover that short. The decline grinds downward to the SCLX low where a Spring #2 forms. Note the March and late April volume spikes. CMG is still being actively liquidated. But in both cases this drop in price and rise in volume occurs above the SCLX low which implies Accumulation by C.O. forces. An attempt to drop below the SCLX low will be the important test of the exhaustion of the supply of shares. This test should be on less volume. In early June, six down days lead to a marginal new low on much less volume than the prior March and April declines. The lack of follow through by price leads a Wyckoffian to conclude that CMG is being supported here by large interests. As volume did expand on the Spring (#2) we must expect one or more Tests. For most of June and into July CMG hovers near the low price but cannot breakdown. This means there are still more shares for sale at these low prices but they appear to be Absorbed. With a Spring #2 it is best to wait for a rally on rising volume followed by a dip back toward the lows on declining volume. In July that is what happens. Volume on the down days is diminishing and the late August lows get close to the Spring low but the test is good. The classic trade is to buy (a one third position or less) the turn off the Test low when some good up bars with expanding volume show strength. Stops are placed under the Spring low. A Backup action shows little ability to decline and volume is not expanding.

This entire sequence illustrates a stock that is under intense selling pressure. CMG has a Creek of overhead supply that is keeping the stock price in the bottom half of the Accumulation range. Wyckoffians see the footprints of the C.O. and their buying operations during the unfolding of this large Accumulation structure. Then CMG Jumps the Creek on the news that Pershing Square has announced the purchase of a 9.9% stake in the company. Now this news is as exciting to a Wyckoffian as a Bigfoot sighting. Imagine one large and skillful operator vacuuming up nearly 10% of a large, important stock right under everyone’s noses. Also, keep in mind that members of the C.O. community are always in competition with other C.O. types Accumulating in the same time period.

As Wyckoffians we now seek confirmation that all of the large sellers are done. This would suggest that Phase D is in force now. So we expect a rally to the top of the Accumulation area with pauses and Backups along the way.

 

Horizontal PnF targets could help clarify strategy.  The conservative PnF Distribution count is exceeded on the final decline to the SCLX. The price snaps right back into the target zone on the AR. The Accumulation is not complete and it is too early to attempt a count of the entire range. The Spring area can be counted and it projects to just above the Accumulation range. This would be a potential Sign of Strength (SOS). This PnF price objective (568/588) would be an attractive target for a trade from the Test of the Spring. We now want to see an ease of movement in the (Phase D) rally that can get above the mid-point of the Accumulation range (above 468). Any big Backup activity should stay well above the Spring low to demonstrate strength of ownership (shares in strong hands). Successful Backups during the rally out of the Accumulation would be the ideal places to add or initiate positions.

It appears that Bigfoot and the Composite Operator Live!

All the Best,

Bruce  

Homework: CMG has a potentially larger Distribution structure spanning all of 2015. Try to count the larger PnF structure. How does this information impact long term tactics?

ChartCon 2016 is fast approaching. It will be an information packed two days with legendary technicians presenting their best work. My presentation is titled: Understanding Wyckoff's Approach to Technical Trading. I am working on this presentation now. My mission will be to reveal tools, tips and tricks for making the Wyckoff Method a powerful ally for you. We will explore how to determine the action points, where they are and techniques for identifying them. I hope you can join me during this exciting two day event.

Action - Test

A cornerstone of the Wyckoff Methodology is the concept of the Action and the resulting Test of prices. Price has a surge of power when it emerges into a Markup Phase or a Markdown Phase. During the Markup Phase prices rise on an imbalance of buying power that exceeds the available supply of shares being sold. The conclusion of an uptrend is typically a Buying Climax. A Climax is an Action. Such an Action must be Tested.

Actions and Tests are occurring in all markets, in all timeframes, all the time. An essential part of the Wyckoff Method is learning to judge this two-step process. Over the course of this blog we have evaluated many examples of this phenomena. Becoming a judge of the Action – Test will put the Wyckoffian well down the path to trading mastery.


Some Tests are successful, while others are not. Gauging the quality and effectiveness of a Test is important in determining whether a price reversal is at hand. A Test is the ‘tell’ when judging if the Action (Climax) has exhausted the trend. We might say that if the Action is the scene of the crime, the Test is the return to the scene of the crime.

A Selling Climax after a powerful downtrend results in the exhaustion of the supply of stock available for sale (at least for the time being). The Automatic Reaction is a sharp, but short lived, rally that indicates that buyers are present to tip the scales. The Test that follows is important. If the Test fails, the downtrend resumes. A successful Test can occur above, at, or below the Selling Climax low and still be successful. Notice that within the schematic of Accumulation that Testing is happening throughout. The bigger the magnitude of the prior trend, the more times it may need to be Tested before it can be reversed. The Test is a visual question: Is the majority of the selling exhausted?

The drama of the Action and Test plays out in all timeframes. Above is a 5 minute chart with about two days of trading. Note the phenomena of the Action and Test repeating multiple times. Traders in all timeframes will seek proof of the exhaustion of the prevailing trend, in the form of Tests, before committing to the new trend.

The signature of the Action phase is volatility, wide spread, and high volume. In contrast the Testing should have compression of the price spread, less volatility and diminishing volume. These indications all point to exhaustion of the prior trend.

As can be seen on this 5 minute chart these concepts are at work continually. Each larger timeframe may be telling a different story, even though the same principles of Action and Test are occurring.

More attention will be placed on the nuances of these trading concepts in future posts. Mastering this Wyckoff cornerstone will prove beneficial to many aspects of your trading success.

All the Best,

Bruce  

ChartCon 2016 is fast approaching. It will be an information packed two days with legendary technicians presenting their best work. My presentation is titled: Understanding Wyckoff's Approach to Technical Trading. I am working on this presentation now. My mission will be to reveal tools, tips and tricks for making the Wyckoff Method a powerful ally for you. We will explore how to determine the action points, where they are and techniques for identifying them. I hope you can join me during this exciting two day event.

Phase Analysis. Two Case Studies

Accumulation is a process, from beginning to end. The purpose of Accumulation is to create an environment where the Composite Operator (C.O.) is able to accumulate large quantities of stock. This is referred to as Absorption. A long and robust stock uptrend follows Accumulation. The Absorption of stock is the systematic removal of stock from the marketplace. The C.O. is purchasing the stock and making it unavailable for purchase by the public or other C.O. types. The goal of the C.O. is to amass these shares of stock in such a way that they do not cause the stock to jump out of the Accumulation area prematurely. The C.O. is very quiet about their activities so as not to attract the unwanted attention of other C.O. types and institutions and thus intensify competition for the Accumulation of available shares.

This process of Accumulation becomes more and more difficult as the Accumulation range reaches a conclusion and the uptrend begins. There are fewer shares being sold by the public and institutions, and there is more smart money competition for these few remaining shares. This is a high skill, large money endeavor.


Unlike any other charting methodology, the Wyckoff Method recognizes the evolution of the Accumulation from start to finish. It clarifies the price and volume progression within the Absorption process. Logic tells us that the structure of price and volume will change in ways that the careful observer can identify. These changes signal where the Accumulation is in its march to completion.

Phase analysis in the Wyckoff Method is for tracking the footprints of the Composite Operator in their campaigns. Please refer to prior posts (click here and here and here) for a review of Phase Analysis and then we will do two case studies using current market examples.

                                                 (click on chart for active version)

Micron Technology (MU): Look for very large spikes in volume and an acceleration of the stock price in to a low which marks the start of the Accumulation range. This is the Selling Climax (SCLX). After the Automatic Rally and Secondary Test, Phase A is complete. The B Phase is a volatile and aimless trading range which discourages stock holders to the point they give up and sell their shares. Note the two Upthrusts (UT) which appear to breakout of the trading range and then, suddenly, fail back into the range. After the second UT, price slides to the lows where Support is present (classic Phase B action). When the Support area is reached during (the typically long) Phase B, Wyckoffians begin to look for trade entry locations. If a new low is made, expect a Spring. If a new low is not made, a Last Point of Support (LPS) is expected. Testing prior price lows are a major principle in Wyckoff. The LPS is testing the SCLX and the two ST. When a low is made on very high volume, expect a price retest at a later date. That is what is happening at the LPS. An LPS or a Spring are doing the same type of work; which is to test a prior high volume price low. Volume will diminish on the LPS test as compared to the prior low. Supply is being Absorbed.

After the LPS and test, we watch for a rally to the top of the Accumulation area. We are looking for a quality rally that demonstrates a Change of Character. Price spread widens while volume expands and this is evidence of aggressive buying. In addition, the stock price has the power to jump above the prior UT highs and the price holds above the Accumulation area. After the SOS, a Backup to the Edge of the Creek (BUEC) forms. This is a pause that allows more stock to be absorbed around and above the Resistance line. Stock is being bought by the C.O. on a scale up from the lows of the LPS, primarily on the pauses and backups. Because of this Change of Character (CHoCH) this area is labeled Phase D and it is the rally up to, and out of the Accumulation. Phase D concludes after SOS 2 and BUEC 2. Phase E marks the beginning of the uptrend.

                                                 (click on chart for active version)

Twitter (TWTR): At the January low the range of Support and Resistance is set, all in one day (Note the SCLX and the AR). We determine this to be the SCLX because of the big volume surge and the ability of price to close off the low and up on the day. Aggressive buying is present on this day. A big bulge of volume on a SCLX will be tested at a later date, which occurs here at the ST. Phase A is complete after the ST. Volatility is the signature of Phase B. After the Up Thrust (UT), price declines easily and rallies are labored. In May and June price camps out (yellow box) at the bottom of the Accumulation below the Support line of the SCLX. During this listless period, a Spring #2 dips below the ST and the price begins to jump the next day. After a Test of the Spring, price jumps the overhead line of Support (blue line). This concludes the final testing of Phase C.

In Phase D we look for price to march up toward the top of the Accumulation zone. The rally in the D Phase cannot get to the AR Resistance line before gapping down on earnings news. We note this rally peak as a Minor Sign of Strength since it could not reach the Resistance line and turned back downward to the LPS. A more dynamic rally would have been preferred. The rally after the LPS and earnings announcement was on better volume and carried above the UT in a near vertical ascent, which was an improvement over the prior rally. Volume spiked on the LPS which demonstrates a supply of stock still being present. As Wyckoffians we expect that price often must retest that high volume level at a later date. Therefore a return to the area currently labeled LPS may be in TWTR’s future. It is possible that a test of the $14 level could be needed.

After a rally to $21 we watch for a SOS that can hold above Resistance. The less price retraces back into the Accumulation the better. But TWTR cannot hold and begins showing signs of weakness and volume expansion immediately. A bullish scenario here would involve the price stabilizing and starting to trade in a small range at the Resistance area. TWTR is a murky picture. Supply is present at the top of the Accumulation and a classic SOS did not form. For these reasons the Wyckoffian must stay vigilant and not assume that any one outcome is likely.

The Spring and the LPS produced classic buy points. Now TWTR must demonstrate that it can resist declining back into the Accumulation, and consolidate near the top of the range. The Backups should have the signature of shrinking volume and spread to prove absorption has taken place. If weakness persists with widening volume and price spread, then we would conclude that more supply is arriving which could drive prices downward.  If this second scenario unfolds then we would relabel Phase C and D as a continuation of Phase B, with the final testing still ahead.

The Wyckoff Method is always an unfolding story where unexpected twists and turns are possible. We must continually be ready to update our scenarios and labeling, and thus our tactics.

All the Best,

Bruce

Announcements:

ChartCon 2016 is fast approaching. It will be an information packed two days with legendary technicians presenting their best work. My presentation is titled: Understanding Wyckoff's Approach to Technical Trading. I am working on this presentation now. My mission will be to reveal tools, tips and tricks for making the Wyckoff Method a powerful ally for you. We will explore how to determine the action points, where they are and techniques for identifying them. I hope you can join me during this exciting two day event.

Dr. Hank Pruden will teach FI354, the Wyckoff Method I class, at Golden Gate University in San Francisco, beginning September 3rd. Roman Bogomazov and I will team up with Dr. Pruden with guest lectures during the semester. Dr. Pruden has arranged for individuals interested in this class to attend the first session free of charge. If you live in the San Francisco Bay Area take advantage of this unique opportunity (GGU is one block from the Montgomery St. BART station). As space is strictly limited to the capacity of the classroom, reservations are a must. Please call Dr. Pruden at 415.442.6583 to reserve your space. 

Roman Bogomazov will be conducting a complimentary webinar on Monday, August 29th. This is an introduction to his online series: Advanced Wyckoff Trading Course (AWTC) - Wyckoff Market Structure (3:30 – 5:30 p.m. PDT).   For more information and the registration link, please click here or if you would like to just register directly, please click here.

The Really Big Picture

The Wyckoff Method scales down into smaller timeframes. It also is very effective in large timeframes. We have spent much time and attention evaluating daily and weekly charts (and intraday charts). Now we will turn our attention to monthly charts where a decade or more of data can be evaluated. Are these charts useful and practical for making decisions in today’s markets?

At times having the perspective of this larger scale can guide our tactics. Let’s evaluate three important bell-weather stocks to attempt to determine their potential and get clues about how they could influence the larger stock market indexes.


Microsoft Corp. (MSFT), Intel Corp. (INTC), and Cisco Systems Inc. (CSCO) are three very large and influential companies. Each is in the Dow Jones Industrial Average, the S&P 500 and the NASDAQ Composite. Their performance can and does impact these important indexes. Evaluating their monthly charts could help to shine a light on the potential of these indexes to perform in the months and year ahead.

                                              (click on chart for active version)

After a dramatic bull run into 1999, MSFT stumbles badly. This decline was the start of a 15 year trading range. Using Wyckoff analysis we can see that even on a monthly scale chart, the attributes of Accumulation are present. Notice after the third Jump Across the Creek (JAC) and Backup to the Edge of that Creek (BUEC 3) the price finally moves above the Accumulation area. This cleared the way for three years, and counting, of an uptrend. Once the resistance line of the 12 year Accumulation is overcome, very little overhead supply exists to impede the progress of prices up to the all-time high price at 41.72. The 1999 high did pause the uptrend for nearly a year, but the trend has since continued.

How much of the Accumulation range is counted on a PnF chart? We always want to make counts that are practical and useful for tactical purposes. Here we count the bear market base from 2011 to 2008 and generate a count of 63.50 to 72. There is also a Stepping Stone Reaccumulation count at the congestion area at the return to the all-time high. This counts to a range of 66 to 70. Therefore this is a confirming count and adds to our confidence about the validity of the two counts. So there is still the potential of higher prices from here for MSFT. Once these counts are fulfilled we will then go back and determine if there are larger PnF counts to evaluate.

                                              (click on chart for active version)

Cisco Systems has a family resemblance to MSFT. It concluded a big bull run in early 2000 and then submerged into a big multi-year decline. A very large 15 year Accumulation range has formed. It appears that after a Sign of Strength, a shallow and long (one year) Backup to the Edge of the Creek (BUEC 3) has formed. Now CSCO is above the SOS high price. As with MSFT, there is minimal resistance for CSCO from the current price to the all-time high at 70.75. Possibly CSCO can act similarly to MSFT as it clears the Accumulation, and a robust uptrend could be ahead.

As we did with MSFT let’s count the Accumulation area of the prior bear market. In this case from 2012 to 2008 (marked on the vertical chart). This generates a PnF count of 70.50 to 73.50 which targets the 2000 high price of 70.75. The PnF price objective targeting the prior all-time high price for CSCO is compelling. We would expect it to take multiple years for such a price target to be reached.

                                              (click on chart for active version)

Intel peaked out in early 2000 and a nasty decline followed. Even on such a large time horizon the attributes of Wyckoff Accumulation are present. INTC has a similar appearance to our prior two examples, but there are differences. Note that a JAC out of the Accumulation area in mid-2014 resulted in a nearly two year Stepping Stone Reaccumulation (SSR) and a Backup to the Edge of the Creek (BUEC 3). What is important is the ability of INTC to Jump out and stay out of the prior Accumulation. This is bullish action. The 2000 high price is 53.27 and that becomes a magnet for an emerging uptrend. Currently INTC is poised at the top of this SSR area and any further price strength puts it into a new stage of Markup.

We have two PnF charts to study. We will count the 2012 to 2008 base. An objective of 62 to 69.50 targets an area above the 2000 price high of 53.27. This PnF count suggests that much fuel remains in the tank and there is potential for new all-time high prices for INTC.

Using a 1 box PnF chart we count the SSR that developed after Jumping out of the Accumulation area. This PnF chart generates a 58 to 64 count to confirm the prior base count. We now have two counts for INTC that nest in the same price zone. If and when these price levels are reached we will revisit the PnF chart to determine if larger counts are available.

Monthly charts can be so revealing. It is always worthwhile zooming out to this mega-timeframe to see if there is a Wyckoff story in the chart. Wyckoff analysis on monthly charts can reveal when major uptrends and downtrend are beginning. Here are three companies that are very influential in all the major stock indexes and will have an impact if they start to run toward their all-time high price points.

All the Best,

Bruce

Please join Roman Bogomazov and me for a free online webinar and interactive discussion on August 24th, 2016, at 3:00 p.m. (PDT). We will review the current market and several leading stocks from a Wyckoff Method perspective. (click here to register)

 The Technical Securities Analysts Association of San Francisco (TSAASF) is having their annual conference on August 20th. This one day conference has an all-star cast of speakers. "The Titans of Technical Analysis" is this years theme. It will be held at Golden Gate University, includes lunch and is a great value. For more information click here.

Wyckoff Power Charting will take next week off. Have a great week.