Updating the Wyckoff
So far, everything is working out according to what we talked about in the last post. We were able to get into our range of high volume, between $1.80 and $2.10. I was pretty surprised we got to $2.10 so quickly, but not as surprise it got rejected there.
I think there is, and will be, lots of low volume testing in this range as the supply gets mopped up in preparation to go higher. I’m pretty sure the “watch the paint dry” party at $1.80 was one of those long, drawn out tests. They will bore you to death. Your impatience will turn to doubt and you’ll pull the trigger to sell right into their hands, it works every time.
I know it’s pretty crappy waiting as we mull through this area, but I believe as we oscillate up and down in this range, weak hands are selling into strong ones and building a nice area of solid support.
Above is the daily chart with some new Wyckoff annotations and BOP. I’ll get into some specifics and show why they are relevant according to Wyckoff, but generally speaking I’m not going to say anything you probably don’t already know. I’ll be referencing The Wyckoff Method: A Tutorial if you want to see where this information is coming from.
My previous chart only showed Phases A and B. Now, I’ve added Phases C and D.
First Phase C. According to Wyckoff it is:
We’ve talked about the spring quite a bit. It occurred on 5/11. Not only was it a bear trap by falling below major support, but for extra measure, it was also the day after lackluster earnings were reported. The post and pre market looked awful after earnings and I’m sure lot’s of people, unfortunately, took the bait and sold or shorted.
So, 5/11 was a double whammy day against the bulls, and yet it still spiked higher. That’s a pretty classic move for a spring.
Granted, it wasn’t the prettiest spring. In fact, it was so ugly, it’s success was questionable. After a big move back into the trading range, It retested the trading range support and seemed to fail. However, between 5/21 and 6/4 it stayed below that support of $1.68 with so little volume, the verdict was still out weather it failed or passed. Then finally on 6/5 it broke back into the range and has stayed there since. Therefore, I concluded that there was a long drawn out retest of support, which is non-typical of a spring, but never the less passed and I marked as phase C.
I should say, a retest of support after a spring is very common, it’s the long drawn out part that is non-typical.
Then there is Phase D according to Wyckoff:
Basically, Phase D is when it starts showing demand taking over in a series of higher lows and higher highs. In the chart above you can see we have now made a series of higher highs and higher lows, enough so that we are able to define an up channel. More evidence of this being Phase D and demand taking over is shown in the BOP. Over the last 2 weeks or so, you can see how the balance of power has been slowly shifting to the bulls. It was spotty at first as the power transferred from bears to bulls, but this week was mostly owned by the good guys. I’m not sure if the bulls completely own it yet as its still in that fragile transition stage, but they have definitely made their presence known.
Speaking of the BOP, today was interesting. We ended down, but it was the strongest bullish day so far. How can that be? I’m not going to post all the numbers, and I’m no mathematician, but examining the formula that calculates the BOP may explain it. From the description of how the BOP works and analyzing the formula, it measures all the ticks throughout the day. So, all those many little movements bouncing between a tight bid and ask effect it more than the one big move between a wide bid and ask.
If I look at the 15 minute chart, I see two or three fast longer drawdowns. Those moves are dramatic, but don’t effect the BOP much. The BOP is designed to give more weight to all the small consecutive moves. Now, think of today in terms of the low volume testing I was talking about, and it makes sense.
What happens is, market makers are looking for supply to absorb. One way is by dropping the price and taking out stops. Another is to try and force weak hands to sell. Their goal is to get all the selling out before they move up again. It’s like squeezing as much toothpaste as you can out the tube until you are satisfied you will get no more. As they find this supply, they either they buy it for themselves or maybe they are doing it to fill an order for someone else. The last thing they want is to start moving the price up and then get hit by supply that knocks it back down. Therefore, there is lots of testing to make sure.
Now, put that scenario in the context of how the BOP works. If market makers are looking for supply, they lower the price quickly to find where the supply is. The move down may look dramatic to us, but to the BOP its not that significant. Those longer moves between a wide bid and ask don’t have much weight. Then, once the market makers find the supply, they pause and buy it up. These little moves of absorption are more significant to the BOP and show up more in the indicator.
This may explain why the BOP is showing bullish on a seemingly bearish day. Because the moves down were manipulated mark downs to find supply, not so much a sell-offs. Once it was found, it was bought up in a small range. So, the buying was actually more dominant to the BOP than a manipulated mark down, and ultimately shows the day as being stronger than the price action implies.
Wrapping your head around the BOP is a little confusing, but when you use it in context to the price movement and volume, it’s good validation for when moves are real or manipulated. In one of my more useful books, A Complete Guide To Volume Price Analysis, she talks about analyzing moves as real or manipulated. She doesn’t use the BOP, but I’m finding it a useful tool to help do that once you understand how it works.
The other part of Phase D is the expanding volume on up moves and contracting volume on pull backs. I zoomed in to Phase D here to show you that is also occurring. By the way, I ignored that one big volume bar because that was the triple witching volume. That’s more an anomaly than volume that actually effects the price.
Above are the Wyckoff phase model and our daily chart together so you can see what I’m looking at and how it relates to the Wyckoff method.
Finally, here is the weekly with the BOP. I’ve been showing the daily because I believe we are transitioning power from the bears to the bulls. I need to focus on that shorter time frame to see the details of what’s taking place. With that being said, the weekly is really my jam. I like the longer term chart as it’s just cleaner without all the daily noise.
It lacks the detail of the daily, but I wanted to show it here so you can see the BOP on the weekly. On the daily the BOP seems to be transitioning power, but the longer term is still owned by the bears. We made a strong move to less bearish this week, but still bearish. This is why I said earlier that it looks good, but it’s still fragile. If we can put together another 2 or 3 strong weeks, we may go green here too. If that happens, then I’ll really be able to exhale.
Our last low was $1.77, so this new low we are forming needs to stay above that. Hopefully we’ve completed it and will move to a new high next week. The 20DMA has also crossed above the 50DMA on the daily with the 200DMA currently being at $2.17. We need to keep the 20DMA above the 50 and eventually take out the 200. If we can manage to do all that, it would be strong!
I had a thought that may seem a bit Debbie Downer, but it could be a good thing in the long run. Again, this is just a random idea, so don’t read anything into it.
So, let’s say we mull in here a bit and eventually break out of $2.10. After, according to the volume profile from the last post, this $1.80 to $2.10 area will act as a strong ledge of support. Next, according to Phase D, we make a strong run to the top of the range in the $2.40 to $2.50 area.
The reality is, without some intervention, the idea of doing another offering is on the table. So, once we are in that $2.40 to $2.50 range, they do an offering which sends us down a good 20% or so back to this support in the $1.80 to $2.10 area where we recover.
This would accomplish a couple of things. First, It would retest the $1.80 to $2.10 area to prove it’s solid support to rebuild from. Second, it would settle their immediate money issues and get that monkey off our back. The move would be painful for a minute, but if we do build strong support here it would stop the sell-off without doing too much damage and bounce back. Then, we can move forward again without the idea of dilution hanging over us.
Who knows though, it was just a random thought which sounds bad, but might be good in the long run. However, that intervention we need would be way better idea.