Wyckoff Power Charting

Gold Fever

My grandfather and great grandfather were gold miners. They took their ‘grubstake’ to Alaska and the mountains of California. After many adventures they succeeded with a small working gold mine in Northern California. You should know this when reading this post as, by heredity; I may have a touch of ‘Gold Fever’.

To tamp down my perma-enthusiasm for gold I am first and foremost a Wyckoffian. Let us do the Wyckoff Drill on the SPDR Gold Shares (GLD). GLD is designed to track the price of the cash gold market. A share of GLD is valued at about one tenth the price of an ounce of gold. It has been a reliable proxy for the price of gold and it is traded by many gold enthusiasts. There are other gold tracking instruments that differ in composition and thus may be more suitable for your objectives.

After a long and grinding bear market for gold, a powerful turn upward in January and February has persisted through mid-year 2016. Is this the start of a new gold bull market? Does it have the potential to keep rising? How far can GLD go and how long can it go?

                                         (click on chart for active version)

Notice the largest bulge of volume at the Preliminary Support (PS) which often happens. The Selling Climax follows, also on very high volume. The Automatic Rally (AR) and the SCLX set the trading range of the Accumulation, which has been three years in the making. Lower peaks (circled in blue) keep the meme of a downtrend in force and mask the Accumulation at work under the surface. A classic trend channel is drawn and highlights an oversold condition in July ’15 and November ’15. We are calling this a Shakeout as it deeply penetrates the SCLX level and remains below for an extended period. The $100 level holds by 23 cents, a key round number and important support.

The rally that starts at the beginning of 2016 is a ‘Change of Character’. Springs and Shakeouts often reverse in such a dramatic fashion. Is the rally nearly over or is there more fuel in the tank? First note that Gold is still within the Accumulation structure. The peak of the Automatic Rally (AR) is Resistance and defines the upper border of Accumulation. Gold has not yet rallied to Resistance. A Sign of Strength (SOS) is a rally that has the power to push higher than a prior important peak. A Minor Sign of Strength has just occurred with a move above $125 (prior important peak). Often a SOS indicates resistance is forming and price needs a rest. There are three key peaks in the Accumulation that are magnets for a SOS followed by a Backing Up action (more on this later).

Labeled on the PnF chart are the essential points from the vertical chart. We always take our horizontal PnF counts from the analysis of the vertical chart. Is there enough fuel in the tank (pent up Accumulation) to make a campaign in GLD worthwhile? We always count from right to left and the LPS will be our anchor on the right side to begin counting. Three segments are counted, two Secondary Tests (ST) and the SCLX. Each of these counts is flagged on the PnF chart. The count could become bigger if GLD rises to the Resistance area and forms additional LPS and Backup levels as these can and would be counted.

The first segment (smallest count) takes GLD to the Resistance area at 141 / 155 which would produce a Major Sign of Strength and complete the Accumulation. The next segment counts to an exact double of the 102 low. There is substantial fuel in the tank to propel GLD higher. The segment from the LPS to the SCLX targets a price of 252 / 266.

Horizontal PnF counting is a powerful tool as it offers a method for estimating the extent of a price movement. But it cannot reveal the time it will, take or the path. The ‘Art of the Campaign’ is a major subject for future consideration. Here is an article co-authored by Dr. Pruden, Prof. Bogomazov and your blogger on another campaign that could illuminate how to proceed with GLD (click here for a link).

Take a moment to study and compare the above schematic to our GLD chart. Typically markets do not move in a straight line. At times markets are in hurry, and then they languish. Wyckoffians learn to let the markets lead the way. This schematic provides a potential roadmap for how prices emerge from Accumulation. It could help us to understand how GLD will stair step its way into an uptrend. There is Resistance at the upper bounds of the Accumulation that must be worked through. This will create pauses and opportunities to climb on board GLD. There is something here for investors and for traders. Investors will look to the dull periods when prices sag to build a position for a long term campaign while the trader will be poised for when dull and quiet prices morph into jumping action and the emergence of a new uptrend.

All the Best,


Seminar Announcement: "The Art of Stock Campaigning Using the Wyckoff Method", Roman Bogomazov, Hank Pruden and I will be conducting a day long seminar in San Francisco on August 19, 2016. For additional information click here.



Stupid Chart Tricks

Stupid Chart Tricks are obscure rules of thumb in chart analysis that are helpful in your trading. These tricks are actually not stupid, they are clever and useful and generally unknown. Over the years we pick up these tips and tricks and incorporate them into daily chart analysis. We use them so often that these tricks become second nature and nearly automatic in their application.

From time to time we will showcase some ‘Stupid Chart Tricks’ that could be useful and helpful. In this post we explore one of my favorites that comes from the horizontal Point and Figure counting methodology.

At the completion of an Accumulation, Wyckoffians will make a horizontal count of the area and project a range of price objectives. At some point in the uptrend a Reaccumulation (SSR) trading range may form. There is a technique for determining when the SSR is likely to end and the uptrend resume. This nifty timing tool is our first ‘Stupid Chart Trick’.

In our last post (click here for a link) we evaluated potential outcomes from the Brexit vote. A bullish scenario was a springing of the trading range and a rally up to the Resistance area. So far this outcome has merit. Let’s count the Reaccumulation area and see if our chart trick might work.

The Accumulation that formed in the first two months of 2016 provided fuel for a robust uptrend. Since April the S&P 500 ($SPX) has formed a Stepping Stone Reaccumulation. Formidable resistance is in the area of the 2015 high prices where the market has stalled. Overhead supply must be absorbed before the market has the potential to climb to new high prices. Is there a technique for estimating when the Reaccumulation is complete and the $SPX may be ready to jump into a new uptrend?

The $SPX reached 2,110 and then entered a SSR. The Accumulation count is 2,270 to 2,350 so there is more upside potential. There is still more fuel in the tank. As Wyckoffians we ask if it is possible to fulfill this higher count objective generated at the beginning of the year (illustrated in yellow). Since April, a high level consolidation has formed a potential Stepping Stone Reaccumulation (SSR). There is a timing technique we can employ for determining when the SSR could end and the uptrend begin. When the Accumulation PnF count and the Reaccumulation count objectives approximately match, look for the uptrend to resume.

The $SPX is a real-time case study of this timing technique. In the Accumulation 15 columns formed before the liftoff. We would expect the Reaccumulation to have fewer columns before resuming the trend and matching the price objective of the Accumulation count. As the SSR forms, we can estimate the number of columns needed to match the price objectives formed in the Accumulation. In this case 9 columns of count in the SSR will match the 15 columns of count made at the lower price level of the Accumulation. Therefore when the SSR has completed 5-6-7 columns of count we estimate that a total of nine are needed.  This is a timing technique. Once we have 9 we start to look for the completion of the SSR on the vertical chart and the resumption of the uptrend. Note the nesting of the count objectives on the PnF chart. After the Brexit Spring, one more reversal downward (by three boxes or more) will complete a total of nine columns of count. When the Accumulation count and the Reaccumulation count approximately equal we will see if our Chart Trick works.

All the Best,


For a case study of  Redistribution click here . For more on Reaccumulation analysis click here and here and here.

Seminar Announcement: "The Art of Stock Campaigning Using the Wyckoff Method", Roman Bogomazov, Hank Pruden and I will be conducting a day long seminar in San Francisco on August 19, 2016. For additional information click here.

breXit and O's

Using the Dow Jones Industrials ($INDU) as a proxy for the U.S. stock market, let’s look at the market’s response to the Brexit vote. Is there a Wyckoffian theme unfolding that possibly provides some early advice on how to proceed from here?

Wyckoffians think in terms of scenarios. Now that price has returned to Support, we consider a bearish and a bullish response to the Brexit event.

In April a big bulge of volume accompanies Preliminary Supply (PSY) and a Buying Climax (BCLX). This supply checks the advance and indicates the C.O. is Distributing in this price zone. Thereafter, a long grinding decline takes $INDU back to the area of Support and slightly through it for a Sign of Weakness (SOW). ICE is an estimation of where Demand and Support reside. The index needs to hold above the ICE and rally away from it. When a market or stock is Distributing, there comes a moment when ICE is suddenly and forcefully broken. This appears to have taken place on the sharp Brexit decline. Volume was huge. We ask ourselves what typically happens after a breaking of the ICE?

Bull Case: Support is still in-play at this price level. A Spring of the SOW low and then a reversal up produces a rally back to the Resistance and potentially into a new uptrend. The Brexit decline is the conclusion of the Reaccumulation and the new uptrend begins.

Bear Case: The very big bearish Brexit bar off the Last Point of Supply (LPSY) is evidence of Distribution being nearly complete. LPSY (there can be more than one LPSY) is the last act of the Distribution phase. A period of Markdown follows the completion of Distribution. There are three classic responses $INDU could make at this level. First, the index rallies to about the mid-point of the Distribution range. The rally is of low quality and low volume. Such a rally would be labeled as another LPSY. This could take a few weeks. Second, the price does not lift and trades sideways under the ICE for a week or two and then resumes the decline down and away from the distribution area. Third, price weakness continues within a few days and the markdown is underway.

                                                        (click on chart for active version)

The volume indicates there was an abundance of supply on Brexit day. Markdowns often start in such a manner. The bull case would need $INDU to begin retracing the Brexit decline very soon with a robust jump back into the Resistance area and to the top of the trading range.

                                                        (click on chart for active version)

The Financial Select Sector SPDR ETF (XLF) has recently been weaker than the $INDU and the $SPX. This sector tends to be leadership (bullish and bearish). Since the beginning of 2016 the XLF has been a laggard. In May and June, XLF is weaker and is breaking into a Markdown after a SOW and LPSY.

Counting the trading range from March to the present as Distribution, there is 2,550 $INDU points generated so far. There could be more. This projects a price objective back to the range of the lows set in January and February. There is a case to be made for another LPSY forming, and this would make the count larger. Also note that the minimum bullish count generated early in the year has been met. The domestic stock market has been in a huge trading range since 2014. The Distribution count illustrated above returns the market back to the bottom of this large multi-year trading range.

Conclusion: the Brexit decline has taken the $INDU to the Support area. Price should attempt to hold in the area of Support. The quality of the rally (or the lack of) that follows will tell much about what comes next. For additional recent market studies click here and here.

All the Best,


June Webinar Special: ‘Practices for Successful Trading: Establishing Routines and Effective Mental Habits’

Roman Bogomazov and I have created a new two part webinar series to help traders and investors adopt or refine the habits – psychological and analytical – needed to acquire mastery of the Wyckoff Method of trading. Join us for part two on Monday, June 27th and review both recordings at your convenience. (click here to learn more)

Putting It All Together

Mr. Wyckoff created a methodology that requires the trader to use judgment for positioning trades. We live in an era where sophisticated computer algorithms are all the rage in trading circles. These automated systems are designed to remove trading judgment from the human process and build it into the computer’s functions. In Wall Street lore these automated trading systems were called a ‘Black Box’. Black Box systems were popular because they promised to remove 'flawed' human emotion from the trading process and therefore generate steady profits. In the end the markets would turn on these automated systems and render them ineffective. It could be argued that if Black Box systems really did work and were the holy grail of investing, cyclicality of prices through the business/investment cycle would become history. And we know from the recent past, that is not the case. The investment cycle is alive and well.

Black box methods (secret mechanical systems) were around in Mr. Wyckoff’s era. But he rejected the notion that such techniques could succeed in the long run. He strongly believed that a trader must understand the ‘Real Rules of the Game’ of speculation. The driving force of price trends is in the campaigns of the Composite Operator. The C.O. is dependent on the large up and down trends of prices and the tendency of the majority of investors to do the wrong thing at the wrong time. Mr. Wyckoff understood that this co-dependent relationship would never fundamentally change. He advised the devoted investor/trader to understand the real rules and develop the skills and knowledge to conduct trading operations in harmony with the large informed interests of the Composite Operator.

The impulses of human nature tend to work against being successful in investing. Therefore, the Wyckoff Method was designed to help the devoted individual trader to shed those natural impulses and replace them with the habits that make for successful speculation. It takes time and practice to retrain one’s thinking to be in sync with the forces that create the big profitable price trends.

We have covered much ground on the disciplines of ‘tape reading’ (chart reading) the Wyckoff way. Putting the pieces together means to integrate what we have learned so far into a cohesive process that maximizes the potential for success in our trading campaigns. This methodology should solidly align us with the interests, motives and forces of the large informed interests. We conduct our campaigns when they conduct their campaigns. We buy when they buy. We sell when they sell. We rest when they rest. The classic human impulse is to buy when the C.O. is selling and to sell when the C.O. is buying. This instinct leads the average investor to hold large stock positions when the C.O. is out of the market (during large markdown phases) and resting up for the next big bull campaign.

Here is the framework for our market campaigns.

Understand the Present Position of the Market. Is the market in an Uptrend?  Is the market in a Stepping Stone Reaccumulation in an ongoing uptrend? Is it in the final stages of an Accumulation? From this analysis we can make a judgment about the markets readiness to begin a move. Determine which stage the market is likely in (Accumulation, Markup, Distribution and Markdown). Using trading range and trend analysis methods, Wyckoffians have superior tools for making these determinations.

Select a Stable of Stocks that are Poised to Move with the Projected Trend of the Market. Using industry group analysis and stock analysis, identify stocks that are leading the market. These are stocks that you are expecting to move further and faster than the market will move. Using Vertical Charts and the excellent tools in stockcharts.com, relative outperformance can quickly be determined. A quality list of leading stocks, in leading groups will prepare us for that moment when markets jump into uptrends.

Identify a Good Cause (Point and Figure Analysis) where Absorption has Taken Place. Accumulation or Reaccumulation can be measured using horizontal PnF counting techniques to estimate a potential for price appreciation. Only consider stocks that exceed your minimum reward to risk objectives.

Select Stocks that are Ready and Poised to Move with the Market. Find those stocks that are poised on the ‘springboard’ to jump upward and out of their area of absorption and into a new or continuing uptrend. There will always be stronger stocks ready to lead the market upward, and these are the stocks we seek to campaign.

Wait Patiently Until the Market is Ready to Begin Turning Upward. When a new uptrend begins the speculator has the wind at her/his back. By timing purchase commitments to coincide with a fresh new uptrend, profits can build quickly. Be alert and ready to act at the beginning of the markets ascent. Markets can move suddenly and quickly. By completing the above processes, a Wyckoffian is ready to make the best decisions at the right times. Integrating these ‘Best Practices’ will put us in alignment with the methods and the activities of the Composite Operator.

Mr. Wyckoff has provided us with all of the required tools to do the above analysis and to be prepared to act in a timely manner. It takes practice and skill to integrate these elements with a high degree of mastery. Practice will bring us closer and closer to the ideal.

Note: For declining markets, the concepts above are applied in reverse.

All the Best,


Roman Bogomazov and I have created a new two part webinar series to help traders and investors adopt or refine the habits – psychological and analytical – needed to acquire mastery of the Wyckoff Method of trading. (click here to learn more)

The Unfriendly Skies

Mr. Wyckoff’s counsel was to learn how to read the tape and then to determine buying and selling decisions by the price action. For Mr. Wyckoff ‘reading the tape’ was best done by plotting the price onto a chart and then interpreting the chart. Our mission in ‘Wyckoff Power Charting’ is to elevate our tape reading skills through the endless practice of chart analysis.

In our last post we compared the Dow Jones Transportation Average to the Dow Jones Industrial Average. The Dow Theory was founded on this type of analysis. Let’s drill down into the Transportation Average and study one of the key industry groups; Airlines.

                                                        (click on chart for active version)

Monthly charts can be illuminating. A nearly five year long Accumulation forms after the bear market of 2007-09. The structure of classic Accumulation can be observed and labeled on this monthly vertical chart.  A big Cause leads to a big Effect. From the low to the high this six year advance in the Airlines industry group leads to over a 940% advance. At the conclusion of the bull run a dramatic Buying Climax forms. After the climax, the price structure has the characteristics of Distribution. We will zoom into a weekly view for more detail.

                                                        (click on chart for active version)

After the rush into the Buying Climax, classic Distribution forms for the Airlines. The rally from the Automatic Reaction (AR) to the Secondary Test (ST) is of poor quality and the result is a decline into a Sign of Weakness (SOW). After the SOW for both the $SPX and the Airlines industry group, the two indexes diverge from each other. The S&P 500 remains strong and matches the prior high, while the Airlines make a lower peak. This is labeled a Last Point of Supply (LPSY) because of the prior SOW. Recall that when a lower low forms (SOW), Wyckoffians are on the alert for a LPSY which is a lower peak. An LPSY typically results in a bear market downtrend. Note how the Airlines have become weak after the LPSY and are now hovering just above the prior (February 2016) low. This is where ICE forms. Now at the bottom of this trading range, Support needs to hold and a rally begin. Falling through the ICE can result in a breakdown and the resumption of the downtrend.

All the Best,


June Webinar Special: ‘Practices for Successful Trading: Establishing Routines and Effective Mental Habits’

Roman Bogomazov and I have created a new webinar series to help traders and investors adopt or refine the habits – psychological and analytical – needed to acquire mastery of the Wyckoff Method of trading. (click here to learn more)

How Now Charles Dow?

My first teaching assignment at Golden Gate University was the survey course, FI352 ‘Technical Analysis of Securities’. This course is devoted to the study of the major technical analysis methods. It is a wonderful course for becoming familiar with the vast body of knowledge that is technical analysis. When I began teaching FI352 it was the only graduate course available on the subject at an accredited university. Today, in addition to FI352, there is an entire graduate degree program in technical analysis offered at GGU, and it remains the only program of its kind anywhere.

I would always open the FI352 semester with a lecture on Charles H. Dow and ‘Dow’s Theory’. His theory, in many regards, is the birth of modern day technical analysis. Chart analysis was in use before his arrival on Wall Street. But it was his innovations, in my opinion, that revolutionized the study of markets and influenced so many of the tools we use today and the common understanding we have about how markets work.

In the early 1880’s, Mr. Dow and Edward Jones began publishing an afternoon two-page summary of the day’s financial news. Included was an 11 stock index mostly composed of Rail stocks.  This publication was delivered throughout New York City and became indispensable to those working in finance at the time. At the end of the decade this publication became the ‘Wall Street Journal’. A few years later Mr. Dow created the Dow Jones Industrial stock index which was composed of 12 industrial stocks. About a year later he added a Dow Jones Transportation stock index. These two indexes became very popular and were watched very closely.

Mr. Dow was of the strong belief that stocks tended to move upward and downward together. Like a flock of birds, most stocks moved in lockstep with the overall direction of the market indexes he published. He observed three degrees of movement in the markets; a major move lasting years, an intermediate move lasting months, and minor swings lasting weeks. Mr. Dow noted that the major trend of stock prices tracked the ebb and flow of business conditions and broad economic activity. His industrial and transportation stock indexes were very useful in indicating the health and direction of the economy.

Another very important observation was that stocks tended to ‘discount’ future economic activity. As we have discussed in earlier blogs, stocks (and therefore the stock indexes) tend to change their trends months prior to the turn in broad economic activity (click here for a link to an earlier blog on this subject). The stock market is a very reliable leading indicator of changes in economic activity.

These theories were published by Mr. Dow on the editorial page over a period of years. The collection of these editorials became known as ‘Dow’s Theory’ or ‘The Dow Theory’.

Central to the Theory was the definition of a trend. A Bull Market uptrend was composed of a series of higher high prices and higher low prices in the Dow Jones Indexes. Intermediate swings of weeks to months in duration would trace out these trends to ever higher prices that make up a big Bull Market. Bear Markets were a series of lower high index prices followed by lower low prices.  The broad conclusion to be made was that business conditions would follow the lead of these big upward and downward stock index trends.

After Mr. Dow’s death, numerous outstanding market analysts carried the baton of The Dow Theory and added their own ideas to it. As Wyckoffians we acknowledge this robust theory for all it has done for the development of the study of markets. The Dow Theory advanced the concepts of indexes, industry groups, chart analysis, and on and on.

From the study of index charts and stock charts Mr. Wyckoff developed his own methodology. He was familiar with the theory and paid close attention to the published indexes.  

As a ‘Tip of the Hat’ to Mr. Dow, we will compare the Dow Jones Industrial Average and the Dow Jones Transportation Average and add in some Wyckoff Analysis. The analysis and comparison of the Industrial Average and the Transportation Average can be as useful today as it was a century ago.

                                                              (click on chart for active version)

A key tenet of the Dow Theory is that when both the Transportation and Industrial Averages trend together, a bull or bear market is confirmed. From 2013-15 we see robust uptrends in both averages and this would be considered a bull market. In 2015 the Transportation Average enters a downtrend while we might describe the Industrial Average to be in a giant trading range. The theory states that the Industrials reflect the health of manufacturing and the Transports indicate that the goods manufactured are (or are not) being shipped to market. If these two gauges fall out of synch with each other then the economy is not humming along. There is stress developing for the broad business environment. A decline in both averages portends a slow down or recession in business conditions.

On the weekly charts above, we can see a Selling Climax in January of 2016 in the Transportation Average and this was followed by a robust rally. But the rally, so far, has been to a lower high. It appears that the Transports are still lagging the Industrials but the Selling Climax is suggesting the downtrend may be over.

                                                              (click on chart for active version)

Zooming in to the daily chart the $TRAN culminates the downtrend with a SCLX (mid-January) and then acts distinctly stronger than the $INDU by beginning an uptrend early. The robust uptrend ends with a BCLX and a throwover of the Overbought line. Support and Resistance lines can be drawn after the Automatic Reaction (AR). Classic signs of Distribution are emerging. We note the decline into a Sign of Weakness (SOW) on expanding volume. The rally that follows is of poor quality as the volume diminishes on the rise from 7500 to 7800. After a SOW we look for a Last Point of Supply (LPSY). Weakness typically follows an LPSY. One potential scenario is that $TRAN declines, but stays above the February low. This could indicate a bigger base being formed (with a larger PnF count) for a more sustainable bull run later on.

If the current trading range in the $TRAN is a Stepping Stone Reaccumulation, we would want to see the volume become dull and quiet on the pullbacks while expanding on the rallies. The evidence does not yet suggest this scenario.

The minimum objective of the Distribution count is an exact hit. Also this is confirmed by a Stepping Stone Redistribution count to the same target. Note that a large SCLX develops right into these downside price objectives which helps to confirm that the PnF price targets are working. In 2015 there appears to have been a bear market in the Dow Jones Transports while the Dow Jones Industrials muddled along in a large trading range. Fulfilling the PnF downside projections combined with a ‘Change of Character’ in the Transports is an encouraging sign for the bulls. While the $INDU is near all-time high prices, the $TRAN is not. Both indexes, in gear together and in strong uptrends would be a good sign for the stock market and broad business conditions.

Mr. Wyckoff was influenced by the development of the Dow Jones Indexes and Charles Dow’s Theory. He added to this body of technical analysis knowledge by developing his own buying and selling tests that built on these principles as well as other valuable indicators. In future posts we will explore these contributions by Mr. Wyckoff.

All the Best,


(Although not in use today, the phrase "how now" is a greeting, short for "how say you now", and can be found in archaic literature, such as the plays of William Shakespeare. -Wikipedia)

Group Stink

Let’s continue our discussion of scanning the market with a top down approach. Recall that we proposed a process of first evaluating the stock market (S&P 500), followed by the Sectors and then the Industry Groups. With a quick scan the best and the worst Sectors and Industry Groups can be identified. This ultimately allows for a focus on the very best ideas.

In the prior post we drilled down into the Materials Sector (XLB) and next into the emerging Specialty Chemical Industry Group. We were seeking emerging strength in the Sectors and Industry Groups, and from this, the best stocks. This week we will learn to spot the warning signs of emerging weakness in the Sectors and Industry Groups.

                                                                   (click on chart for active version)

Let’s study the Materials Sector (XLB) during 2014 and 2015. At the early November recovery high of the $SPX, the Materials Sector is clearly lagging. The XLB eventually rallies to its September peak in late November. The $SPX is stronger and makes new highs. The lagging nature of the XLB is becoming more pronounced. When the $SPX reverses down in December the XLB is already falling and is much weaker. Thereafter, XLB makes a series of lower peaks until a final thrust into a Buying Climax in late February. Noticeable weakness follows for Materials while the $SPX keeps pushing to new high prices from February through May. There are early warnings of trouble for the Materials sector and the lagging behavior results in a total breakdown in June. The $SPX is still hovering near the high prices while XLB is in free-fall. We take a cue from this persistent weakness to drill down into the Industry Groups that compose this Sector to find the culprits that are dragging down the Sector

                                                                   (click on chart for active version)

The Paper Industry Group is within the Materials Sector. Though it is not the only weak Industry Group, it is an excellent case study. Note the $DJUSPP Buying Climax (BCLX) and the persistent price deterioration thereafter. Not only is Paper weaker than the market it is also weaker than the Materials Sector. At the Secondary Test (ST), Paper forms a large negative divergence in comparison to XLB and $SPX . This combined with the BCLX argues for the stopping of the trend and a reversal into Distribution. A breakdown of key support for Paper while the $SPX is probing new high prices is a big warning to sell the Industry Group. The two Last Point of Supply  (LPSY) areas are profoundly weak points on the chart. The markdown that follows is in sharp contrast to the price action in the $SPX.

                                                                   (click on chart for active version)

International Paper is a large capitalization component of the Paper Industry Group. IP follows the Group closely. Much of what was said about the Group is relevant here. Note the downward stride that is established immediately off the BCLX peak. Try drawing the downtrend channel. After a Sign of Weakness (SOW) expect a Last Point of Supply (here we have two). There is an attempt to rally which has poor lift and stalls at the ICE. This is a particularly dangerous place on the chart which can lead to major weakness, and does so here.

An uptrend in the stock market indexes can mask the emerging weakness of formerly strong Industry Groups and stocks. By always scanning the Sectors and Industry Groups a Wyckoffian can see these shifts as they are emerging and be prepared to trade important investment theme changes.

All the Best,



Wyckoff Group Think

Finding the best emerging stock ideas can seem like finding a needle in a haystack. The goal is to organize your market analysis in such a way that you can drill down into the market structure and find leadership quickly and efficiently. There are many good ways to survey the market. As a Wyckoffian, I think a powerful technique is to scan the market manually. This approach will give you a feel for the market that is unique and intimate. While this may seem like a daunting task, a thoughtful system reduces the burden.

My preference is to scan the overall market, then the Sectors, then the Industry Groups. Choose the most promising Industry Groups and then drill into them to find the strongest, leading stocks. Doing this work each week on some part of the market will give you a good feel for the state of the entire stock market. Soon you will have a strong sense of the leadership and the laggards and eventually a feel for the emerging rotation of Industries into favor and out of favor.

Organizing your analysis by market, then Sector, then Industry Group will make this exercise manageable in the time you have available.  Stockcharts.com makes it efficient to drill in and go from Sector to Industry Group to stock analysis.

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Leadership change among the Sectors often occurs somewhat suddenly (over a few weeks). The Materials Sector is weak and has a decline that is in-gear with the $SPX into the January low. Then an abrupt shift occurs where XLB is noticeably stronger than the $SPX while the broad market is basing. 

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When we drill into the Materials Sector list there are ten Industry Groups. The Specialty Chemical Group illustrates how well Wyckoff Analysis works. In late 2015 this group was a laggard performer. At the beginning of 2016 this all changed as the Specialty Chemicals began building a Cause and performing in lockstep with the $SPX. IF the Specialty Chemicals are demonstrating improved performance there must be stocks in this Industry Group that are outperforming. The Wyckoffian mission is to find the stocks imbedded in the Industry Group that are pulling the entire Group and Sector upward.

                                                             (click here for active version)

H.B. Fuller (FUL) is in the Specialty Chemical Group. First note that FUL makes a final low one week before the $SPX makes a Climax low. Thereafter it shows pronounced leadership. By the final February test in the $SPX, the higher low in FUL is dramatically higher. This is one of the stocks that is leading the Specialty Chemical Group. As Wyckoffians we are interested in campaigning the leading stocks. FUL is clearly a leading stock in an emerging Industry Group leader ($DJUSCX) and Sector leader (XLB). The dynamic performance of FUL, once the entire market enters an uptrend, proves that this stock wants to persist as a leader.

There are other considerations as you search through the individual stocks in an emerging Industry Group. Start by looking at the largest capitalization names first. Institutions will tend to buy the large and liquid stocks first. They will generally avoid the small capitalization stocks. Always buy the leaders and avoid the laggards. Early leadership tends to persist as long term leadership.

Try drilling into the Materials Sector and the Underlying Industry Groups to see if you can identify other emerging leadership stocks during the January and February timeframe. With practice you will become very efficient at finding the best leadership in the market.

All the Best,



Skill Drill: Visually scan the Sectors to identify leaders and laggards. (click here for a list of Sectors).

Choose a leading Sector and evaluate the underlying Industry Groups by clicking on the Sector name (click here for an example).

Evaluate the stocks in an Industry Group (click on the name for the list of stocks in that group) and see if you can find the leading stocks (click here for an example).

Wyckoff Power Charting. Happy Birthday!

We have reached the one year anniversary of the Wyckoff Power Charting blog. Many thanks for being enthusiastic and supportive readers. Let’s pause and look back at what we did in the first year.

Richard D. Wyckoff’s emphasis was, first and foremost, to educate investors about the ‘Real Rules of the Game’ of Wall Street. The public must understand that investing is a competition where they are trading against the sharpest minds and the best systems imaginable. The absolute finest of this professional class of investors are the ‘Super Traders’ whom we call the Composite Operator (C.O.). The C.O. is the very, very best on Wall Street and they manage inordinately large portfolios. When the C.O. finds a stock they plan on owning and campaigning, they build a huge position in it. This takes knowledge, time and skill. The C.O. class of investor also must compete with other large C.O. types to lock up the float of the available shares.

In the blog post ‘Getting Some Basic Terminology Under our Belts’ (click here for a link) we explore the investment cycle. The investment cycle is classically composed of Accumulation, Markup, Distribution and Markdown. This cycle repeats endlessly on Wall Street. Mr. Wyckoff wanted us to understand that the fate of a stock is the result of who owns it. Who has absorbed and controls the floating supply of shares available? The law of Supply and Demand is the dynamic at work here. If the Supply of shares is in the strongest hands (the C.O.) then the float is locked up. The Composite Operator, through their campaigns, have limited the shares available for others to buy. A slight increase in Demand for the shares, combined with scarcity of shares obtainable, will send the stock price rocketing upward.

The process of Absorbing shares of a stock is called Accumulation. After a markdown, the C.O. determines the price where value exists and Supply is present (the area of the Selling Climax, SCLX) and initiates the Accumulation process. This is the start of the absorption of the floating shares. Early blogs were devoted to the study of Accumulation, beginning with the stopping of a downtrend (SCLX). Then the C.O. carefully absorbs shares without unintentionally driving the stock upward until a full position is Accumulated. Mr. Wyckoff made the case that we could detect the footprints of the C.O. on the tape (in the vertical bar chart) as they stealthily did their work. Through the analysis of the Phases of Accumulation (click here for a link), Wyckoffians learn how to see the nuanced changes in the stock price action that tells of the completion of Accumulation.

Completing Accumulation (absorption) tips the Supply and Demand balance toward scarcity of shares and this puts the stock into a robust uptrend. The Wyckoff method has a unique and ‘all its’ own’ quality to trend analysis. Trend channels in the form of Demand Lines and Overbought Lines show the ‘Stride’ of the advance and provide junctures for the purchase of shares during the Markup. Trend analysis is unique in the ability to identify trend exhaustion which either leads to the Stepping Stone Reaccumulation or the Distribution Phase.

A Wyckoffian’s objective is to detect the stock that is under Accumulation and then to time purchases to coincide with the stock Jumping into an uptrend. The mission here is not to compete with the Composite Operator, but rather, to trade in concert with their campaigns.

Exhaustion of the uptrend arrives with a series of Climactic price spikes. Either a Stepping Stone Reaccumulation or a Distribution formation follows Climactic stopping action. A Stepping Stone Reaccumulation is a period of time in a trading range where stock is Reaccumulated for another leg up of the bull run.

Distribution arrives after many months to years of rising prices. The C.O. is very, very carefully selling their large holding of stock with the objective of not inducing weakness while they sell and prematurely putting the stock in a downtrend. A stock requires the active support of the C.O. to remain in a bullish uptrend. The removal of that campaign of support will stall the stock and produce a sideways market. The act of selling will eventually produce a bear market. The best markets to sell into are frothy with bullish news on the market and on the individual stock’s sunny prospects. This glow of good news has the effect of keeping institutions and individual investors in the stock and buying more. The paradox of good news at the top is one that Wyckoffians must guard against. Good news during Distribution and bad news during Accumulation is a signature of all market cycles. Selling in concert with the C.O. is the objective of Wyckoff Analysis.

The Markdown is the inevitable result of the C.O. finally selling all of their stock during Distribution. Typically the downtrend begins with a bang as prices tumble violently. Downtrend channels are very helpful tools for evaluating and trading bear markets.

In Wyckoff Analysis the compliment to the vertical bar chart is the point and figure chart. The horizontal counting method provides the Wyckoff trader the ability to estimate price objectives. By counting across the horizontal area of the Accumulation range or the Stepping Stone Reaccumulation the potential ‘reward’ or extent of the move can be calculated. Counting the Area of the Distribution and Stepping Stone Redistribution accomplishes the same objective for declining markets.

First Year Highlights for your Review (click on the title for a link):

'Wyckoff Walk Around the Clock'  For a review of the investment cycle of Accumulation, Markup, Distribution, Markdown.

'Wyckoff Power Charting. Let's Review' A discussion of the Phases of Accumulation with Schematics.

'Context is King' A discussion of the Phases of Distribution.

The Laws of Wyckoff’ and  ‘The Illustrated Wyckoff’  A discussion of the three laws of the Wyckoff Method.

'Intro to Point and Figure Construction' This is the first of seven posts devoted to horizontal point and figure construction and counting.

We have done much work in building the Wyckoff foundation during the first year. As year two begins, we will focus more attention on skill building and mastery development. There is also more to reveal about the method and its hidden secrets. Again, thank you for your readership.

Also, I would like to express my gratitude to Chip Anderson and the staff at stockcharts.com for their ongoing support of Wyckoff Power Charting.

All the Best,


Professor Roman Bogomazov and I discuss the Wyckoff Method in a three part webinar series (6 hours in total) on May 9th, 16th and 23rd. Roman teaches the Wyckoff Method (online course) at Golden Gate University. It is not too late to sign up for this lively discussion of the Wyckoff Method. All sessions are recorded and available to each attendee. Join us for two more sessions of live discussions and review all of the recordings at your convenience. We will use the “Wyckoff Power Charting” blogs as the framework with additional material added. The fee for this series is only $49. Click here to sign up now.


Springing into Action

Stepping Stone Reaccumulation (SSR) formations are significant yet common. An SSR is a pause where the stock rests before resuming the uptrend. SSR formations often have a signature of making the lowest low early in the pause (in the first third to half of the total time spent in the SSR). We have recently explored some examples of this phenomena and how best to trade it (click here). Once the low is in place, the tendency is for the price to then scale upward with a series of higher lows until reaching the resistance area. Once above resistance, the trend tends to resume at a steady and robust pace. There is another type of SSR that we should be prepared to trade.

As is the case with all SSR formations, once the Buying Climax has been set, the Automatic Reaction will follow and these two points set the Resistance and Support of the emerging trading range. In this alternative type of SSR, we see a pattern of rallies off of Support being stopped at ever lower peaks. The appearance is of a series of declining highs which suggests that sellers are becoming more aggressive in their shedding shares at ever lower prices. This looks like Distribution, but it is not.

The final act of this deteriorating picture is typically a Spring. A break of the Support line and the prior lows shatters the confidence of the remaining holders and in many cases they are compelled to sell. It is difficult to hold on to stock that continually diminishes in value as the trading range grinds onward, only to be confronted with a wholesale breakdown of the SSR.

The breakdown in the late stages of the SSR is a Spring. The Spring is a terminal act that concludes the listless sideways price action and it is followed by a robust rally to the Resistance area and a resumption of the uptrend.

                                                               (click on chart for active version)

Apple abruptly concludes an advance with a reversal and we label a BCLX and AR to set the Resistance and Support. Each peak thereafter is lower than the prior. An important rule of thumb for this type of SSR is that lower peaks are followed by a Spring. That is the case here. Note the big surge of volume on the break of Support. This is a Spring #2 which must be tested and it is the next day. High volume indicates a supply of stock becoming available below the Support zone. The Composite Operator is buying this stock but they are uncertain how much supply is actually present at this level. The next day on the Test, the price remains above the low and the volume is less than on the Spring day. The selling appears to be exhausted. Quality demand bars emerge the next two days on high volume as Apple works up to the Resistance line and into a new uptrend. Note the gap on the way up. We conclude from the gap that much of the supply has been absorbed and price will now move easily upward. Volume diminishes as price climbs above the Resistance area. It is taking very little Effort (volume) to move prices up (the Law of Effort and Result). Stock supply is scarce. Buy Apple on the Test of the Spring #2 and place the stop under the lowest price. Also stock can be bought on the demand bars that follow the turn off the Spring. Stops would be set in the same location.

                                                               (click on chart for active version)

Charles Schwab has an Upthrust as it tests the BCLX and then returns to Support. The next peak is marginally lower than the UT and then abruptly falls back to Support. Note in both of these examples that the stock wants to return to Support. In previous SSR studies, the stock tended to make higher lows and stay near the Resistance area. For SCHW the tendency is for the price to camp in the lower half of the trading range. The price hovering near the low of the trading range is very discouraging to stock holders. The final act is a Spring #3 which goes below the low of the AR and the Support. The volume is low, not rising above the recent low levels. When the price Springs on low volume the stock can be bought right away. Don’t expect a Test of a #3 Spring and in the case of SCHW there is no Test. The price pivots off the low and begins marching upward. Buy the Spring or any of the demand bars that follow. Place stops under the low of the Spring day. Just like with AAPL, there is a gap up and out of the Resistance. Stock has been absorbed and is scarce. The gap proves that institutions are finding it difficult to buy the stock in quantity. After a SOS there is a Back Up to the Edge of the Creek (BUEC) which returns to Resistance (old Resistance becomes new Support). The BUEC is a classic place to add to the position. Move up stops on the entire position to under the BUEC and the Resistance line. After the BUEC, a big demand bar launches SCHW into the next phase of the uptrend.

There are no absolutes in the price action of stocks and markets. We study and discuss tendencies. Tendencies are the product of human behavior in action, and the sum total of all of the participants and their methods and influence. All reflected on the tape. We study these tendencies and we prepare for any and all eventualities as best we can. As Wyckoffians we learn to love the uncertainty and the opportunity to learn something from every situation. This attitude puts us on the mastery path. We walk it with humility and gratitude.

All the Best,


Professor Roman Bogomazov and I will discuss the Wyckoff Method in a three part webinar series (6 hours in total) on May 9th, 16th and 23rd. Roman teaches the Wyckoff Method (online course) at Golden Gate University. We will use the “Wyckoff Power Charting” blogs as the framework for our discussions with additional material added. Each session will be recorded and will include ample time for attendees to ask questions.  The recordings will be available for your review or if you are unable to attend the live sessions. The fee for this series is only $49. Click here to sign up now.