For those of you who are trading this market, these past 6 months are starting to look like that of a Wyckoff Spring. Understand that the psychology of the markets do not change, only the news events, that is why technical analysis works so well. The Big Picture provides a quick overview of the Wyckoff Spring.
Richard Wyckoff was a trader from the 1920s. He wrote several books on the Market, and eventually set up the “Stock Market Institute” in Phoenix.
The past 6 months could be part of a so-called Wyckoff spring, which occurs when a market average (or stock) falls below its trading range, makes a new “panic low” and then “springs” back into its previous range.
“At its core, Wyckoff’s work is based on the analysis of trading ranges, and determining when stocks are in “basing,” “markdown,” “distribution,” or “markup” phases. Incorporated into these phases are the ongoing shifts between “weak hands” (public ownership) and “composite operators”, now commonly known as smart money.”
I’ve added some key dates to the Wyckoff’s methodology below to apply it to today’s market:
Right now we are between 8 and 9. I’m looking for the S&P to hit 839/841 then have a strong pullback. This strong pullback will give anyone an opportunity to buy this market and ride it for a couple of months. This have been that mid-march rally that I have been screaming about for a while now. As you can see, it’s now manifesting itself. Understand that the talking heads on TV are going to be screaming the recession is over, the bailout plans worked. Blah Blah Blah, the market is rallying. DO NOT BE FOOLED BY THIS. A multi-month rally in bear markets is typical. Do your research. Until then, we will putting our cash to work in the markets for at least a couple of months. Please note: We are very nimble and do not hold steadfast to any trading model. If something fits we use it, if anything changes we will be out the market and our strategy can change at the blink of an eye.