UnThreaded | Threaded | Whole Thread (5) | Ignore Thread Prev | Next
Author: HCourtney Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 2705  
Subject: CAM Date: 3/27/2002 10:48 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 4
Pruden refines Wyckoff principles as well as broadening their application. He states that UpThrusts and Shakeouts can occur w/in both accumulation and distribution ranges, and that both a Selling Climax and Buying Climax can occur w/in one range. He also expands the definitions of the range. And in addition to Wyckoff's 9 Buying/Selling Tests, Pruden has adapted 9 Reaccumulation/Redistribution Tests. He also divides the trading range into 5 phases:

A: Stopping the Trend (SC/BC, AR, ST).
B: Building a Cause.
C: Testing by Smart Money.
D: Establishing the Up/Down Trend.
E: The subsequent Trend.

I've been studying CAM for several days, it is a difficult base to analyze, at least it was for me. But I also think it illustrates Wyckoff beautifully, by way of Pruden. The graphic has both the Daily Candlestick and P&F charts.

http://photos.yahoo.com/bc/hcour/vwp?.dir=/My+Documents&.dnm=CAM+Daily+%26+P%26F.GIF&.src=ph&.view=t&.hires=t

After a long sharp decline from 6/01 to 9/01, we have Preliminary Support (PS) mid-Sept. This occurs at the previous high vol stopping point of 8/8. After this consolidation and breaking of support there is a parabolic drop on very wide spreads and very strong volume. This is all in hindsight of course, but this would have certainly been a warning to look for a possible Selling Climax (SC), or at the very least an extremely oversold condition.

The Automatic Reaction (AR) follows, breaking the long-term dtl and establishing the range between the SC and AR. Price consolidates there for about a week before the brief Secondary Test (ST). This completes the Pruden's Phase A, stopping the trend.

The ST is immediately followed by a sharp UpThrust (UT) out of the trading range, meeting resistance at the low of the PS consolidation area. At this point one could have suspected this might be a V bottom and would wait and see how the subsequent reaction behaved. In the meantime, since this was an important s/r area, one could draw a horz line to possibly define a wider range, ala Pruden.

That reaction of the UT provides the first test (T1) of the ST, which holds on lower vol, a positive sign. After a much more brief UT, we have a Shakeout (SO). A SO is a sharp move down on high vol, which can occur w/in the range or break the range. Price behavior subsequent to a SO can be very telling. This is a particularly nasty SO, note the very high vol, huge gap, wide spreads. Also note however, that it does not break the bottom of the range and if fact stays well away from it.

Before continuing it's relevant to note the exceptionally wide swings from SC to UT to SO in the early phases of this range. I think this is reflective of the extremely volatile nature of the SC that led to it. Volatility, especially in the extreme, does not simply turn on a dime, it has to be absorbed by price action and time. Compare the volatility of the first two phases of the range A & B w/that of the latter phases C & D. (BB's, not included, show this clearly.) This transition from high to low volatility as a range progresses is classic market behavior.

The reaction off the SO fills the gap, breaks thru the minor dtl drawn from the first 2 UT's. Now note particularly the very low vol test (T2) of the SO the week of 12/10, which is also well off the SO low (and riding the upperside of that minor dtl) and also holds as a test of ST. This would have gotten a Wyckoffian who knew his stuff quite excited and they may even have taken a position here.

I have drawn a horz blue dotted line here at the two huge gaps and the ST and its test, to help visualize price behavior w/in the range. During phase C & D price remains well w/in the upper part of the range and following the test of the SO we have a series of higher lows (T2 & LPS1 & LPS2), and higher highs (12/5 and SOS1 & SOS2). These are Signs of Strength and Last Points of Support, which are establishing the uptrend in Phase D. Each LPS is also a test of the previous low. Note also here in C & D how the 50d ema flattens out and then turns up, acting first as resistance, then as support, converging with the now flat 100d ema. There is also an utl drawn from SC to SO which price rides nicely and which forms an ascending triangle w/the top resistance line of the range. Keeping in mind that the latter part of the range establishes accumulation/distribution this is all extremely positive, according to Wyckoff/Pruden principles.

Phase E is a good breakout thru the top of the range on strong vol; the Pullback (PB) on lower vol, with barely any retracement, is more of a consolidation. After a sharp uptrending channel an overbought condition on climatic vol occurs on 3/11 at about 52. On the figure chart this is approximately the price count from the base at 40/41, which would have taken it to about 54/55. Pretty nice.

The difficulties I found in analyzing this range are the extreme volatility immediately following the SC, and the UT action, which is ambiguous, and the vol during the first part of Phase D, which is not as clear-cut (expanding on rallies, contracting on reactions) as one would prefer, though neither is it neccessarily divergent w/the price action.

Harold
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (5) | Ignore Thread Prev | Next

Announcements

Pencils of Promise - Back to School Drive
"Pencils of Promise works with communities across the globe to build schools and create programs that provide education opportunities for children."
Managing Your Wealth
Our own TMFHockeypop from Rule Your Retirement fame on the TV show Managing Your Wealth.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement