Wyckoff Method of Technical Analysis - BAC (Oct 2011)

Dear Readers, I was looking for signs of accumulation for the stock of Bank of Amercia (BAC) and decided to apply Richard Wyckoff's method of techinical analysis to the chart pattern of BAC.

BAC could possibly be at the stage where it is preparing to make the jump across the 'creek' a.k.a major resistance OR a failure to make the jump could see it coming down to the $6 or even $5-plus region for a retest of the support.

I came to know of Wyckoff's method of technical analysis when I came across "The Three Skills of Top Trading" by Hank Pruden whereby the Wyckoff schematics of accumulation and distribution were covered extensively by the author. Fantastic read! This book is a must read !

Abbreviations used:

Selling Climax (SC): the point at which widening spread and selling pressure (high volume) usually climaxes and panicky selling by public is absorbed by professional interest at prices near bottom.

Automatic Rally (AR): Relief rally where short-covering can easily cost prices to shoot up

Secondary Test (ST): A retest of the area of selling climax to test the supply and demand at these levels. For a bottom to be found, volume and price spread should be significantly diminished as market approaches
support.

Spring: Also known as a shakeout.

Sign of Strength (SOS): Advance on high volume and price spread

Last Point of Support (LPS): The ending point of a reaction or pullback where support was met, also known as a retest of support where long position can be initiated or to add to profitable ones.


Have a good weekend!

With reference to my earlier two posts on Wyckoff's method of technical analysis on BAC, i realised that on hindsight, the level indicated on the chart below could not be the "last point of support" as the stock price was supposed to bounce off the level instead of hugging it. I have indicated the correct LPS on the chart as well for comparison..

Reference to earlier posts:

Wyckoff Method of Technical Anaylsis - BAC


Wyckoff Method of Technical Anaylsis - BAC (part 2)

Financials are sneaking up (Ichimoku breakout for FAS)

Dear Readers, the financial sector is moving higher. It looks like there could be a Ichimoku breakout for FAS on the cards. What is an Ichimoku beakout? A move out of the clouds would mean that a new trend is possibly in place. Traders using the Ichimoku Cloud system would start to accumulate/buy stocks that are breaking out of the Ichimoku Clouds as depicted in the Direxion Daily Financial Bull 3X ETF (FAS) chart below (click on chart to enlarge). Proper position sizing are used as one can never know if the breakout could be a failure and Ichimoku traders would add to or average up their holdings at even higher price as the stock price moves up. Scary isn't it? Its a mechanical trading style. Stop loss would be moved up to limit losses or to secure their profits.

Ichimoku Clouds is primarily a trend-following system. The rationale is to buy high as that means that the stock is showing strength and can only go higher from the buy point. A move out of the clouds would mean that a new trend is possibly in place. Some famous trend followers are Ed Seykota and John W Henry (current owner of Liverpool Football Club).

Next we look at everyone's favourite stock, Bank of America (BAC). BAC made a higher high and a higher low on its daily candlestick during trading on Thursday. It bounced off its support on a successful retest. This is a good area to accumulate long position as indicated in the Wyckoff method of technical analysis. We should see BAC moving higher from here.

Good luck to all !

Wyckoff Method of Technical Analysis - BAC (Part 2)

Dear Readers, do you still remember this earlier post on "Wyckoff method of technical analysis on BAC" ?

It suddenly dawned on me that BAC is back at its original "Last Point of Support" on its daily charts. I have many friends who are interested in buying BAC for the long term and this could be a good entry with stop loss, of course. However, it shoud also be very interesting to see how would BAC react at its near term resistance of $12.80.

Last Point of Support (LPS): The ending point of a reaction or pullback where support was met, also known as a retest of support where long position can be initiated or to add to profitable ones.

Who is Wyckoff and what is his method of technical analysis?
Richard Wyckoff, one of the great traders in his days, identified trading ranges as places whereby accumulation and distribution develops to build a cause for the subsequent change of trend in movement of price actions. Trading range are places whereby there are equilibrium between supply and demand and if judged correctly, would allow traders to profit form the magnitude of the move within and out of trading ranges.

Wyckoff Method of Technical Analysis - BAC

Richard Wyckoff, one of the great traders in his days, identified trading ranges as places whereby accumulation and distribution develops to build a cause for the subsequent change of trend in movement of price actions. Trading range are places whereby there are equilibrium between supply and demand and if judged correctly, would allow traders to profit form the magnitude of the move within and out of trading ranges. Wyckoff and Jesse Livermore belong to the same era on Wall Street history but Livermore was primarily a trend follower while Wyckoff was a range trader

I came to know of Wyckoff's method of technical analysis when I came across "The Three Skills of Top Trading" by Hank Pruden whereby the Wyckoff schematics of accumulation and distribution were covered extensively by the author. Fantastic read! This book is a must read !

Here i will attempt to explain the anatomy of the trade for Bank of America (BAC) using Wyckoff's trading method.

 Abbreviations used:

Selling Climax (SC): the point at which widening spread and selling pressure (high volume) usually climaxes and panicky selling by public is absorbed by professional interest at prices near bottom.

Automatic Rally (AR): Relief rally where short-covering can easily cost prices to shoot up

Secondary Test (ST): A retest of the area of selling climax to test the supply and demand at these levels. For a bottom to be found, volume and price spread should be significantly diminished as market approaches support.

Sign of Strength (SOS): Advance on high volume and price spread

Last Point of Support (LPS): The ending point of a reaction or pullback where support was met, also known as a retest of support where long position can be initiated or to add to profitable ones.


Have a good weekend!

WFR - Trading off weekly and daily charts

MEMC Electronic Materials (WRF) is another stock which is on my watchlist. Look at its beautiful weekly chart. I am so very excited on this stock. WFR broke its downward trendline in end Jan 2011 on heavy volume and tested the top resistance of the Ichimoko Clouds before moving down to its support at the base of the clouds. A change of trend is the most lucrative to trade if one has the patience to wait it out. This stock would be a low risk buy on a retest of support.

As the famous great trader Richard Wyckoff would put it, this stock is currently in the midst of backing up to the "creek" after its initial rally. Wyckoff said that it is normal for an advance to be corrected with a reaction to the vicinity of the halfway point of the advance. Since the halfway point is above the creek, the back up is likely to be completed between the halfway point and the top of the creek. Wyckoff also said that we will need the combination of narrow price spreads and low volume on the back up in order to take up a long position. This will serve to be a primary buying opportunity.

Look for a reversal candlestick on the bottom channel of the trendline of daily chart of WFR. Only buy when it rebound... or else....