Do you remember Wyckoff?

 Richard Wyckoff is considered by many as one of the early pioneers in the analysis of how stocks reacted to changing conditions. By studying the actions of many of the leading investors and traders of the early 20th century including Jesse Livermore, E. H. Harriman, James R. Keene, Otto Kahn, J.P. Morgan, and many other large operators of the day.

Wyckoff was able to define a trading methodology which has been the basis for many succeeding gurus.

Wyckoff analyzed these market operators and their operations, and determined where risk and reward were optimal for trading. He emphasized the placement of stop-losses at all times, the importance of controlling the risk of any particular trade, and he demonstrated techniques used to campaign within the large trend (bullish and bearish). The Wyckoff technique may provide some insight as to how and why professional interests buy and sell securities, while evolving and scaling their market campaigns with concepts such as the "Composite Operator".

Why am I focusing on Wyckoff today? It is because of his volume price analysis work which many consider to be his greatest contribution to technical analysis.

Volume Price Analysis

As the market moves towards new highs the one weakness appears to be a lack of verification by volume. My old mentor would call the action of the recent market gains a situation where institutions were selling into strength which they were manufacturing. The following three charts from StockCharts.com of the major indices shows that despite the market hitting new record highs, volume was mostly below the 50 day moving average of volume.

Conclusion

With all the uncertainty facing the world along with the disconnect between hard and soft data it would appear that the lack of volume could well be a warning sign that the markets 94 months of uptrend could be in jeopardy.

As a result, it would behoove cautious investors to maintain as Wyckoff advocated strict stop losses on each of their market positions.

But then - 'Tis Only My Opinion!

Fred Richards
June 3, 2017

www.adrich.com
www.strategicinvesting.com

Corruptisima republica plurimae leges. [The more corrupt a republic, the more laws.] -- Tacitus, Annals III 27

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