Wyckoff Power Charting

Dear Point and Figure Diary

Dear Point and Figure Diary,

As you know, I made an entry into your pages on July 15th of this year (click for a link). At the time, it appeared that two Reaccumulation Point and Figure Counts (PnF) were stacking up. This suggested another rally phase ahead in the Dow Jones Industrial Average ($INDU). I tend to be conservative in my counting, and that was the case then. But, after making this diary entry, in the second half of July additional columns materialized and increased the count objective. This spurred me to reassess the prior (and bigger) count (March to June period). In the PnF below are the updated count objectives and a third Reaccumulation count.

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Chemistry Experiment

Two strong sectors in September were Materials (XLB) and Industrials (XLI). During the second half of a business cycle expansion these themes typically do well, and that is the case here. The economy has begun to expand at a faster rate. These industries develop pricing power which allows them to raise prices for their goods at a faster rate than the general economy is growing. These companies now have ‘leverage’ in their business models which make them particularly attractive to investors as the economic cycle accelerates.

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Group Dynamics

Let’s have a peak at some interesting sectors. At times, sectors can tip us off to the motives of the market. Sectors and Industry Groups have a general tendency to be either early, coincident or late business cycle beneficiaries. This business expansion has certainly been a long one and it appears to have life left in it. We can often tell where we are in the cycle by which sectors are strong and leading, and also by the sectors that are lagging behind.

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$COMPQ Up Close

The NASDAQ Composite ($COMPQ) has consolidated since early June. Two very prominent Buying Climax peaks arrived, one in June and the next in late July. They are labeled on the vertical chart and the Point and Figure chart. This has slowed the advance of the $COMPQ to a crawl. Meanwhile two well formed Reaccumulation structures have developed. Which generally means they can be evaluated and Point and Figure counts taken.

Currently the NASDAQ Composite has returned to the July 27th BCLX peak. This Resistance level is in force and holding the index back. Provided that it can break out, there are two PnF price objectives that confirm each other. Let’s drill into this recent price structure and see what is going on.

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Dr. Henry O. (Hank) Pruden 1936-2017

Technical analysis education suffered a great loss with the recent passing of Dr. Henry O. (Hank) Pruden. A consummate educator, in 1976, Hank combined his incredible capacity for inspiring students with his personal passion for Technical Market Analysis. The result was the very first graduate course, at an accredited university, in the study of markets using chart analysis. Dr. Zahn, Dean of the Business School at Golden Gate University in San Francisco, said ‘Let the Market Decide’ when Hank proposed this innovative new graduate course. Hank’s electric teaching style and unique curriculum made this class an instant hit. The classroom would fill up every semester and students would take the class again and again.

In 1987 Hank took a sabbatical, recharged his batteries, and came back stronger than ever. Hank and I collaborated on the creation of a new class based on the Wyckoff Method (which we team taught). Hank then developed an entire Technical Analysis Certification Program. Students could earn a certificate in Technical Market Analysis or take these courses in conjunction with their M.S. degree.

Dr. Pruden was a prolific writer publishing many papers on technical analysis and peak performance in trading. We have linked to a number of his articles here and hope to make more of them available in the future. In 2007, he published his seminal work “The Three Skills of Top Trading” (Wiley). In it we discover Dr. Pruden’s view of the essential qualities of the consistently successful trader. Dr. Pruden designed the curriculum of the courses at GGU to reflect this world view. In his personal development as a complete trader he came to understand that trading success depends on being competent in these three skills of top trading. His goal was to have every GGU graduate be capable in these important skills. And to have every reader of his book be on the path to trading mastery. His mission was to have every student become the complete trader.

Dr. Pruden is one of those rare people who touched the lives of many in a most personal and positive way. To honor his life and commitment to others, let’s step forward and strive to be the very best complete trader possible. Hank believed we were serving others by following our passions and doing our very best work. Hank showed us how to touch the lives of others through the metaphor of trading mastery.

Celebrate Hank’s life by viewing these two videos:

View a brief bio of Dr. Pruden’s life here. This video was shown at the 2013 International Federation of Technical Analysts (IFTA) Annual Conference in San Francisco when Dr. Pruden received the IFTA Lifetime Achievement Award.

(click here for a link).


Dr. Pruden’s last appearance was a video presentation at the Best of Wyckoff 2017 conference in August. The title of the talk is: Using P&F Charts to Find the Present Position & Forecast the Probable Future Trend of U.S. Equity Prices: Applications of the “Wyckoff Law of Cause and Effect”. Thank you to Roman Bogomazov at wyckoffanalytics.com for generously making this video available for all to see.

(click here for a link).


Working up WDAY

The Wyckoff Method is well suited to the concept of campaigning stocks. When a campaign works, a stock may be held for months to years while participating in a major uptrend. Mr. Wyckoff’s goal was to hold the campaign stock until the chart (tape) indicated selling by the large informed interests (Composite Operator). 

In this post, we will study the elements that go into identifying an emerging campaign. The idea of conducting a campaign is to get onboard an emerging uptrend and then to stay on it while the tape suggests the trend is rising. Here we will look for the elements of a campaign trade in the case study of Workday, Inc. (WDAY). In future posts, we will explore how campaigns often end. Here we will consider how they start.

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Transports Hit the Wall

The ‘Dow Theory’ involves the study and comparison of the Dow Jones Industrial Average and the Dow Jones Transportation Average. When both averages are in ‘lockstep’ in a major uptrend, the market is said to be in a Bull Market. When both are in a downtrend, a bear market is in force. For more on the history and use of the Dow Theory take a minute to read the post ‘How Now Charles Dow? (click here for a link).

The Dow Jones Transportation Average ($TRAN) is often a leading indicator and can tend to turn prior to the Dow Jones Industrial Average ($INDU).  The Transports peaked in the last quarter of 2014 and then traced out Distribution. By the end of the first quarter 2015 a downtrend for the Transports was in force that would persist for the remainder of the year. The $INDU continued to form Distribution while the $TRAN was racing downhill. See more detail on this prior period by clicking the link above.

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Range Bound NDX

Mr. Wyckoff called his charting methodology ‘Tape Reading’. Determining the present position and probable future direction of prices from their own action. Prices have tendencies which can be detected on the charts. Context is the idea that recent price action will provide clues about what to expect next. This is at the core of how to use and profit from the Wyckoff Method.

In our Market Outlook and Stocks Review webinars (Wednesday 3pm PDT), Roman and I work with our attendees to develop mastery around anticipating the tendencies of the markets. One of the most valuable mastery skills is identifying (early on) when a trending market becomes a ‘Range Bound’ market. In the June Market Outlook sessions, we began observing a ‘Change of Character’ in the Nasdaq 100 Index. This change of context, we concluded, would have consequences for the action of this index for the weeks, and possibly months to come. Let’s review how the Wyckoff Method informs our analysis and tactics with a case study of the current position of the NASDAQ 100 (NDX) Index.

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Wyckoff the International Language

Golden Gate University’s technical analysis courses are in demand from students around the globe. The Wyckoff classes that Dr. Pruden and I teach welcomes students from many countries. These students, applying the Wyckoff Methodology, present stock case studies to the class. Often the international students highlight stocks listed on their home country exchange. It becomes evident to the entire class that all auction markets, everywhere, are subject to the principles of the Wyckoff Method. The Composite Operator (CO) influences that produce the effects of Accumulation, Markup, Distribution and Markdown are at work throughout the world. Students soon learn that Wyckoff is an international language. Put Wyckoffians, from the four corners of the world, together in a room and they soon discover they are speaking the same language using charts.

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A Dollar for Your Thoughts

The dollar has been sinking since the end of 2016. Recently there has been much attention and commentary from the financial community on the impact of this weakness. A falling dollar typically helps U.S. exporters by lowering the price of their goods in world markets. A lower dollar imports inflation by raising the price of the many goods manufactured overseas and sold in the U.S. Rising inflation can have an effect on the level of interest rates. These effects typically manifest over many months, and sometimes years of currency weakness. If there is a change in the winds for the currency markets, it is just beginning. Let’s have a Wyckoffian look at the dollar and try to sort out the present position and probable future direction of this important currency.

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