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And Now What? . . The Plot Thickens November 15, 2013

Posted by Tom in Thoughts.
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This is my first post on my new computer using Windows 8.  Yes, it takes time to get accustom to it, but I am beginning to like Win 8; it’s pretty capable once you find out what it can do and where to find stuff.  🙂  Also, SSD (Solid State Drives are amazingly fast; yes, by a factor of over 20 times faster than a fast hard drive.  Impressive for data crunching !

So now what?  Where is this market going and why is it going?  Well, it’s going up.  As long as we’re in this (purple) channel, without a major sell off on high volume, I’d say we’re still in that up trend that began last year about this time.  Note I’m still concerned that we’re hugging the top part of that channel because that’s where sell offs & corrections could happen.  I’m still labeling the chart with Wyckoff distribution labels, because it could happen and I want to remind myself about that.

NASDAQ

The recent run up this week does have some signs of an Upthrust After Distribution, that being narrow range bars (Thursday & Friday) on decreasing volume, at the high-end of the price range.  That doesn’t mean that a Distribution sell off will happen, but it is a sign of a pause and possible weakness.  We won’t have that confirmation until next week, and that’s assuming prices fall and we see a series of weak bars on the chart.  I also note at the top red histogram that buying demand this week fell short of the previous peak back in late October.  Humm, a new high on lower volume and lower demand.  No red flags, but something to watch.

And “Why” did this market go up?  Low oil prices, better international news (Europe and Emerging Markets) or what?  The reason is always the same: “There were more buyers than sellers”.  In order to sustain the move additional buyers must be brought into the market, otherwise . . .    Let’s not try to rationalize “why” and focus on the price and volume action in the context of the structure.  “Why” really doesn’t make a difference.

If you’re not in this market now what?  You can either wait for another price correction or scale in.  Wyckoff was a fan of scaling into all positions.  He would buy 1/3 of a position at a very aggressive point (at the first signs of strength in a correction) and then add to it IF the price action confirmed the anticipated up move.  Another 1/3 once the upper trading range was broken and again the last 1/3 at the first correction / retrench of prices after the range breakout.  That could be good advise here.  If you need to buy, scale in.  As you are proven correct, buy more.  At a pause or small correction add the final amount.  If you’re wrong, you have less money at risk and you should know to exit immediately IF you are losing money.  After all, in a Wyckoff accumulation price structure, if correct the price should not fall back to the recent lows.  Remember, you could be early and the structure has not completely developed yet.  That’s OK, exit and monitor.

What’s moving right now?  Rail & Road Transportation, IT Service, Electrical Equipment and (select) Healthcare sectors.  That’s it for now, have a good week.

(Chart courtesy of MetaStock, used with permission; to enlarge it, click on the chart)

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