Upwards, Sideways & Down

Fotosearch_k8916628-1That’s the direction of the Dow Jones 30, the S&P 500 and the Russell 2000.

Intermediate and advanced trading professionals understand what this means.

When a market has experienced a long, sustained advance that may cover months and years … near the end of that advance and just prior to the ultimate top, the market thins out.

That’s the process whereby fewer and fewer stocks are participating in the advance.  Essentially, the bear market has already started as more and more stocks fall away from the uptrend.

In fact, ZeroHedge just reported the S&P 500 in its narrowest (11-day) closing range in history:  An unprecedented event.

Now that we appear to be at the upward extreme, what happens next may be unprecedented as well.

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For technical analysis on individual stocks, markets or indices, please visit our parent site at www.ten-trading.com

 

“Buckle your seat belt Dorothy ….

’cause Kansas is going bye – bye.”

If there’s a spot for the market to reverse, this is it.

2016-11-28_15-32-29-spy-weekly-notes-1

 

With markets at stretched, bloated and obscene valuations (as reported by David Stockman), we even have an article that tells us the bull market is just getting started.

Well, anything can happen but false narratives abound at the extreme end of a trend.  A ‘new bull market’ could very well be false.

In depth technical discussions of the S&P and other markets are on our corporate site located here.

The bottom line is, we might already be on the ride … to much lower levels.

 

Charts produced by TC2000 which is a registered trademark of Worden Brothers, Inc., P.O. Box 1139 Wilmington, NC 28402.  Ph 800-776-4940 or 919-408-0542.  www.Worden.com

 

 

 

Coiled Spring

While the market looks dull, it’s actually coiled up like a spring ready for its next move.

The best analysis we have found thus far, is the quote below.  The analyst states that price action looks like a pendulum swinging down to rest.  We’re in a brief period of dull market activity.

“These dull periods often occur after a season of delirious activity on the bull side.  People make money, pyramid on their profits and glut themselves with stocks at the top.  As everyone is loaded up there is comparatively no one left to buy, and the break which inevitably follows would happen if there were no bears, no bad news or anything else to force a decline.”

Indeed, it’s an excellent assessment of the price action in the S&P as seen below.

2016-10-08_9-23-04-spy-daily-close-coiled-spring-notes

The problem is, that analysis was not written this past Thursday or Friday.  No, that assessment was written over a century ago in Wyckoff’s seminal text:  Studies In Tape Reading.

To understand the present, we need to understand the past:  especially with stock market activity.

The human condition has not changed since inception.  There’s no new ‘quant’ program that has it all figured out.  If that were true, price action would look different.  We would not be able to use century old techniques to call market turns to-the-day (repeatedly) as detailed here and here.

The only media mention of Wyckoff that we’ve ever seen is a brief reference by Linda Bradford-Raschke (former pit trader) at this link.  At time stamp 0:36, she mentions Wyckoff.  It almost slips by for those not attune.

  • If the pit traders know where to go for guidance, should we not do likewise?

As we come forward one hundred years, we see the S&P has coiled itself like a spring.  For the past seven-plus years, it’s been delirious bull market activity as Wyckoff stated.

Traders and investors have continued to gorge or force themselves on every last up-tick.  The market has now come to rest apparently unable to move higher.

What new catalyst will come to the fore to launch to higher levels?  It could happen:  However, the most probable resolution of this formation is a move to the downside.

References:

Wyckoff quote from Studies In Tape Reading.  Used with permission from Cosimo Classics.

Charts produced by TC2000 which is a registered trademark of Worden Brothers, Inc., P.O. Box 1139 Wilmington, NC 28402.  Ph 800-776-4940 or 919-408-0542.  www.Worden.com