Wyckoff Market Check-up: January 23, 2019

In the last Wyckoff Market Check-Up, I provided a full-scale overview of the state of the S&P 500.

The market had recently suffered a significant decline through the support levels defined in the Change of Character drop at the beginning of 2018. The price of the SPDR S&P 500 ETF (SPY) sliced through support at a dizzying pace, as supply rush into the market on the way down.

This was, without a doubt, the strongest downswing in the trading range, and as such, it was labeled as a Major Sign of Weakness (MSOW).

Leading into the new year, a technical rally from these oversold levels got underway, where it is now challenging the support-turned-resistance in the lower half of the range.

SPY Distribution

On the back of the weakness exhibited in the MSOW decline, this technical rally has exceeded my expectations in terms of the duration and distance it has covered.

For the majority of the move, demand has been steadily receding.

In spite of this, prices have continued higher, first above the February 2018 lows, and then into the area where the MSOW really picked up steam.

In recent days, however, we are starting to see some evidence of stopping action.

As the price has entered the area of the Last Point of Supply (LPSY), there has been a slight surge in the volume signature.

The supply that came in on January 18 was enough to create a reaction over the last couple days. This could be a Change of Character that leads to the swing lower we’ve been expecting.

Given the strength of this recent rally, it may take some time for a local distribution to form prior to the downswing starting.

Perhaps this could take the form of a low volume, weak test of the January 18 high, where price could converge on the supply line drawn from the Upthrust After Distribution (UTAD) top.

For now, I believe the bias is still distributive from a longer term perspective, although we must be on alert for a shift in the weight of evidence toward the bull side.

Here are 4 stocks that may be of interest to short sellers in light of the bias we have established.

Abiomed (ABMD)

ABMD Distribution

ABMD Notes:

  • Was a strong leader, and the Buying Climax (BC) occurred much later than the market
  • Weaker than the market through its entire range
  • Volatility increasing throughout the range as bouts of supply come in
  • Unable to rise above support-turned-resistance, despite the recent market rally

Diamondback Energy (FANG)

FANG Distribution

FANG Notes:

  • A lot of volatility throughout the whole range, with sharp reactions off the resistance area
  • Classic UTAD, then underperformed the market during the SOW declines
  • Recent rally was stronger than the market, but unable to get back into the range
  • May need some time before larger mark down begins

Estee Lauder (EL)

EL Distribution

EL Notes:

  • Led the market prior to April 2018 BC
  • Showed some elements of strength in the first half of the range
  • Volatility and volume higher in second half of the range
  • Large effort to overcome BC resistance with unsuccessful result
  • Currently unable to rally into the trading range, despite strong market rally

Amphenol Corp. (APH)

APH Distribution

APH Notes:

  • Began getting weak in late 2017, before the market BC
  • Weaker than the market throughout the trading range, as seen in the relative strength line
  • Significant increase in volume and volatility to the downside as Phase C turned into Phase D
  • So far unable to return to the trading range on recent rally

While the current bias is to the downside, we should be looking for weaker-than-the-market issues for shorting opportunities.

The rally off the MSOW low in the market brings to life the possibility of Re-accumulation occurring.

Or, it may mean a local Re-distribution is in the cards prior to mark down beginning.

Depending on the way the next downswing shapes up, there may be opportunities for swing trades on the long side.

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– TS

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