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THE STOCK MARKET UPDATE August 20, 2012

David H. Weis
www.WeisOnWyckoff.com Email:dhw@weisonwyckoff.com
The S&P rallied today 1.75 points beneath the March high, it settled .50 points
lower and held for the third day within a 2.25-point cluster of closings. I see this
behavior as the prelude to a move above the March high. At that point, however,
the S&P could become vulnerable. After several weeks of crawling upward to a
new high for the year, we do not want to see a downward reversalespecially one
that leads to a close below todays low. I am always suspicious of breakouts. They
lure the weakest traders into going long out of fear of missing something spectacu-
lar. Spectacular is at a low point on the bell-shaped curve of probabilities just like
the downward reversal described above is at another. If I had to bet on one or the
other, the downward reversal has a slightly greater chance of happening. Im just
warning against euphoria or complacency. The composite average of the five
bellwether markets I monitor daily points to a rising stock market. AAPL leads
the pack. EFA and the trend of commodities are neutral. Copper looks a little
troubling while the dollar index is coiling. This coiling in the dollar is reflected on
the daily Euro chart. I can make a case for a bullish surprise in the Euroat least
for the near-term (see page 2). This in turn improves the outlook for the stock
market along its probability curve. In the end, its all a matter of gradations.
THE STOCK MARKET UPDATE August 20, 2012
David H. Weis
www.WeisOnWyckoff.com Email:dhw@weisonwyckoff.com
When I look from right to left over the Euro continuation chart, I am first struck by
the markets interaction with the line drawn across the June 1 low (1.2288). The
shortening of the downward thrust on the decline to the July lows stands out next.
It is followed by a bullish change in behavior (July 26) where we see strong buying
and ease of upward movement. It raises the possibility of a spring. On August 2,
however, the Euro experiences a wide-open, high-volume break with a close near
the days low. It implies the Euro is headed lower. The potential bullish story
emerges on the following day where there is no downward follow through and price
closes near the high of August 2. One should always pay attention to lack of follow
through after a threatening bar (up or down). After this bullish turnaround, the
Euro has nestled into a tight formation on top of the support line drawn across the
June 1 low. A lift-off above Fridays high could produce a nice upswing. The point
& figure count across the 1.2300 congestion line, projects a move to 1.26. I see 6 to 4
odds in favor of this storynot bad for a futures trader.
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