Wyckoff Power Charting

Campaigning Gold

The Wyckoff Method is designed for the campaign oriented trader. Discipline, patience and vision are the skills required to conduct a bull or bear campaign from start to finish. Wyckoff provides outstanding tools for executing on such a trading orientation. Point and Figure offers a technique for estimating the extent of a price move. Trendline analysis has unique methods for examining and gauging the quality of the unfolding trend. Accumulation and Distribution analysis helps to determine the readiness of price to emerge into a fresh new uptrend or downtrend. Combining these skills makes for a sturdy approach to campaign a trend from start to finish.

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Point & Figure Diary

Regular readers have been following the epic saga dating back to 2011, when Dr. Hank Pruden published his Point and Figure (PnF) count for the new bull market. This count projected to a range of 17,600 to 19,200 for the Dow Jones Industrial Average ($INDU).  When this objective was met we said: ‘But wait, there is more’. Almost exactly a year ago, in this blog, we revisited the original Accumulation and found that an additional count could be added to the PnF price objective.  The 17,600 to 19,200 count was very useful as the $INDU was stopped in this range for more than two years. That range produced a Stepping Stone Reaccumulation PnF count.  The larger Accumulation count and the new Reaccumulation count approximately confirmed each other (click here to review these PnF charts). The cluster of count objectives target 22,000 to 24,500. As we move toward these price targets, new Reconfirming counts continue to be generated. This brief update is to illustrate a new count that arrived in the month of June since our last post on this topic (these PnF counts can form quickly).  Links to the prior posts are below.

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FANGtastic Trendlines

The Wyckoff Method for constructing Trendlines is unique. They inform our analysis and support sharper tactics.  Trendlines and Trend Channels bring a chart to life. We have used significant amounts of ink drawing and discussing trendlines in this column (below are links to prior columns on Trendline construction and analysis). Continue to practice identifying the stride of the advances and declines on your favorite charts using these techniques.

Each Wednesday afternoon, Roman Bogomazov and I conduct a Market Outlook and Stocks Review session online. We analyze the major market indexes as well as oil, gold and other futures contracts and leading stocks from a Wyckoffian perspective. Our goals are to strengthen traders’ real-time processing of market conditions, including building alternative price scenarios and crafting the best trading tactics under each scenario. To learn more about these sessions, please click here.

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WFM Is Swallowed Whole

Whole Foods Market agreed to be acquired by Amazon.com, Inc. on June 16, 2017. This ‘disruptive’ move by Amazon.com roiled the retail stocks, which were already sagging badly. The price drops extended throughout the retail brick-n-mortar stocks. Investors in these retail stocks feared that AMZN would strategically leverage the acquisition with a physical presence at every WFM store location.

As Wyckoffians our mission is to discover and follow in the footsteps of the large Composite Operator (C.O.). The C.O. conducts campaigns in stocks that have the potential to move in a sustained and significant upward manner. They help this process along by absorbing a significant amount of the available shares of stock (during Accumulation) and removing them from the market. The C.O. community, in aggregate, will wait for much higher prices before they will be willing to sell any of their shares. With stock in the strong hands of the C.O., it means a marginal increase in demand will dramatically lift a campaign stock into a new uptrend. Wyckoff’s approach was to look for the footprints of the C.O. in the price and volume action on the vertical bar chart. And next, to estimate the potential extent of the move with Point and Figure analysis.

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More Pie. Bigger Sky!

In 2011 Dr. Hank Pruden published a remarkable Point and Figure chart study, which called for a new bull market in stocks. The horizontal PnF counting method, as applied by Dr. Pruden, revealed a price objective of 17,600 / 19,200. That count produced a whopping 11,100 Dow Jones Industrial Average (INDU) points and was added to the countline of 8,100 and the low of 6,500. A big and bold count. During 2014 the minimum count was achieved. Thereafter a Reaccumulation formed. In July of 2016 a new uptrend began. Dr. Pruden, Roman Bogomazov and I reevaluated the original base count and the Reaccumulation to determine if there was more fuel in the tank for a continuation of the bull market. The result of this study was published here in July of 2016. Please take a minute and read this post (click here for a link). Also read the article where Dr. Pruden makes his legendary market call (click here for a link and turn to page 29).

When ‘Point and Figure Pie in the Sky?’ was posted, the INDU was jumping to a new high and clearing the 18 month Reaccumulation trading range at 18,600. In that blog post, the case was made for increasing the original Accumulation PnF count and making even higher price projections. In addition, the just completed Reaccumulation PnF count confirmed this higher price potential. New objectives were generated to approximately 22,000 / 24,000. Let’s now update the progress of the INDU on the way to these price objectives.

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Shorts Find TSLA Shocking

Tesla has just achieved a market capitalization that is larger than either Ford or General Motors. Currently Tesla manufactures just two different models (with a third on the way). How is it possible that Tesla has a valuation that exceeds these two Detroit behemoths? As a Wyckoffian I will tell you that I have no earthly idea. Could an analysis of the charts reveal the intentions of the large informed interests (the Composite Operator)? Is Tesla done going up, or is there more charge in the batteries to propel this stock price higher?

Tesla has been ‘climbing the wall of worry’ for a number of years. Recently short sellers have been squeezed by a stellar rally that has taken TSLA out of a multi-year trading range and into a new markup phase. In early 2016, we studied the Point and Figure Distribution Paradox (click here for a link) with TSLA as our case study. We managed to publish this study the week of the Shakeout low for TSLA. There was three confirming PnF counts which nested in the same price zone plus a Climactic Shakeout of the multi-year trading range. Let’s bring the TSLA chart studies up to date as much has happened since this original post.

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Another Stupid Chart Trick

Time for another ‘Stupid Chart Trick’ (click here for a prior chart trick). I have counted about one zillion (this might be a slight exaggeration, but barely) Point and Figure chart formations. As a consequence of this personal passion, I have devised some counting conventions that have proven to be very helpful. This is not a classic horizontal PnF counting technique. So please explore its usefulness for yourself with some practice counting.

A common problem with counting PnF Distribution is over-counting. We have addressed this in a prior post (click here for a link). Identifying the proper and accurate Distribution PnF count is a nuanced concept. Here is a technique to help with identifying counts that are more conservative (and I find more accurate).

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Segmenting PnF Counts

Wyckoffians often break up a large Point and Figure count into smaller count objectives. A large count objective usually requires a significant period of time to be fulfilled and pauses will occur along the way. Sometimes these pauses result in a period of Reaccumulation prior to moving on to higher and higher price objectives. Segmenting PnF counts can help to identify and evaluate these pauses.

Another very important reason to divide up PnF counts, is that often the entire base is not Accumulation. It is important to only count the Accumulation portion of the base structure. A decline can be stopped by a Selling Climax, but the strong hand of Composite Operator absorption may not yet be present. If that is the case, then only a part of the base is actual Accumulation. Over-counting a PnF Accumulation range is a common problem. Segmenting the PnF count is the answer to this potentially costly error. We are endlessly asking ‘how much of this trading range is Accumulation?’ What portion of this trading range structure is ‘Intelligent Accumulation?’

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The New Nifty Fifty

The ‘Nifty-Fifty’ era for stocks started in the 1960s and went into the early 1970s. These fifty or so stocks were consistent out-performers. Their earnings, sales and stock price growth stood apart from most other stocks. These stocks grew in value, year after year. They became known as ‘One Decision’ stocks. These companies could be bought and held forever. Buy them and forget them. The result and the consequence was that the Nifty-Fifty became very overvalued, and they stayed that way for a long time. Most other stocks during this era languished, underperforming badly.

Eventually the Nifty-Fifty Era ran out of steam. The result was the stock malaise of the 1970s. Stocks were in a decade long trading range. The mistake market participants made was thinking any stock is a ‘One-Decision’ investment. It appears we could be in a new Nifty-Fifty Era (of sorts), which we should embrace, while keeping the above lesson in mind.

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