Today is a difficult day to discuss from a Wyckoff perspective because we are looking at the market solely from its own action. In a world where spoken truth let alone understanding is increasingly rare the Wyckoff perspective of looking at the market as the distillation has even greater validity. At the least it tells us what the powers that be, rightly or wrongly, foresee and are up to. There will be times however where by not taking news or potential news into account we are confounded further.Today we will start from the largest perspective. Our 1x1 point and figure shows the down trend unabated. There was the most minor of back-ups after breaking to new lows and then we proceeded down further. Nothing much to say here but continued weakness.
Let's turn to the daily SPY. On a wider range and higher volume, we closed at about the lows. The volume has been creeping up every day this week, why hasn't the range increased more? There has been no ability to rally significantly, but there has not been a rout either. Is there hidden demand? What forces are at work? How does this effect a strategy or position? What is the market telling us by this action?
With these questions in mind let us look at the intraday. The futures opened significantly lower and then proceeded to rally on heavy volume. They were immediately supported and they almost as immediately run into heavy supply. The support buying is filled with selling on bars 2-5, as all the closes are within a point or so, just below 700. We spike through on heavy volume catching some stops and just the kind of buyers who go for such bait and we immediately reverse and move lower. So what happened? Clearly there is plenty of supply, and because the supply is more than happy to sell at higher prices, the support prevents a rout. Both the supporting buyers and the heavy sellers foresee lower prices. That is the story of the day. The buying has a purpose, it is not to own shares, it is not to move prices higher, not to trigger short covering in order to get short at even higher prices, like we have seen so many times before. The market is so weak prices cannot be moved higher. The purpose is to prevent increasing downward momentum which will be further fueled by a weak employment report tomorrow morning. On the two or three other times the market can go down sharply today, the exact same scenario occurs. It is most clear after the reversal bar with 100 above it toward the end of the day. We begin down with good volume and widening spread, but the momentum is cut short and we muscle back up. There is no short covering, in fact we have 4 equal closes in a row, supply easily filling the demand. The purpose of the buying is damage control, no momentum, in the event of a horrible report in the morning.
So I leave you with a question, if the damage control prevents high volume, large range, panicky liquidation days, how are we going to have a bottom put in? If this strategy of support continues, this decline can continue for a long time because the conditions that make for even a temporary bottom are being actively prevented. It is this support which is preventing the range from increasing, preventing a bottom from occurring, and by its inability to trigger buying, advertising how weak the market is. Such is the paradoxical world we now live in. Perhaps some are good enough to trade this market, I believe the proper strategy is to sit and wait for the panic, no matter how oversold you think the market is and this could take weeks to months.
