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Springing into Action

Stepping Stone Reaccumulation (SSR) formations are significant yet common. An SSR
is a pause where the stock rests before resuming the uptrend. SSR formations often
have a signature of making the lowest low early in the pause (in the first third to half of
the total time spent in the SSR). We have recently explored some examples of this
phenomena and how best to trade it (click here). Once the low is in place, the tendency
is for the price to then scale upward with a series of higher lows until reaching the
resistance area. Once above resistance, the trend tends to resume at a steady and
robust pace. There is another type of SSR that we should be prepared to trade.
As is the case with all SSR formations, once the Buying Climax has been set, the
Automatic Reaction will follow and these two points set the Resistance and Support of
the emerging trading range. In this alternative type of SSR, we see a pattern of rallies
off of Support being stopped at ever lower peaks. The appearance is of a series of
declining highs which suggests that sellers are becoming more aggressive in their
shedding shares at ever lower prices. This looks like Distribution, but it is not.
The final act of this deteriorating picture is typically a Spring. A break of the Support
line and the prior lows shatters the confidence of the remaining holders and in many
cases they are compelled to sell. It is difficult to hold on to stock that continually
diminishes in value as the trading range grinds onward, only to be confronted with a
wholesale breakdown of the SSR.
The breakdown in the late stages of the SSR is a Spring. The Spring is a terminal act
that concludes the listless sideways price action and it is followed by a robust rally to
the Resistance area and a resumption of the uptrend.

(click on chart for active version)


Apple abruptly concludes an advance with a reversal and we label a BCLX and AR to
set the Resistance and Support. Each peak thereafter is lower than the prior. An
important rule of thumb for this type of SSR is that lower peaks are followed by a
Spring. That is the case here. Note the big surge of volume on the break of Support.
This is a Spring #2 which must be tested and it is the next day. High volume indicates a
supply of stock becoming available below the Support zone. The Composite Operator
is buying this stock but they are uncertain how much supply is actually present at this
level. The next day on the Test, the price remains above the low and the volume is less
than on the Spring day. The selling appears to be exhausted. Quality demand bars
emerge the next two days on high volume as Apple works up to the Resistance line and
into a new uptrend. Note the gap on the way up. We conclude from the gap that much
of the supply has been absorbed and price will now move easily upward. Volume
diminishes as price climbs above the Resistance area. It is taking very little Effort
(volume) to move prices up (the Law of Effort and Result). Stock supply is scarce. Buy
Apple on the Test of the Spring #2 and place the stop under the lowest price. Also
stock can be bought on the demand bars that follow the turn off the Spring. Stops
would be set in the same location.

(click on chart for active version)


Charles Schwab has an Upthrust as it tests the BCLX and then returns to Support. The
next peak is marginally lower than the UT and then abruptly falls back to Support. Note
in both of these examples that the stock wants to return to Support. In previous SSR
studies, the stock tended to make higher lows and stay near the Resistance area. For
SCHW the tendency is for the price to camp in the lower half of the trading range. The
price hovering near the low of the trading range is very discouraging to stock holders.
The final act is a Spring #3 which goes below the low of the AR and the Support. The
volume is low, not rising above the recent low levels. When the price Springs on low
volume the stock can be bought right away. Dont expect a Test of a #3 Spring and in
the case of SCHW there is no Test. The price pivots off the low and begins marching
upward. Buy the Spring or any of the demand bars that follow. Place stops under the
low of the Spring day. Just like with AAPL, there is a gap up and out of the Resistance.
Stock has been absorbed and is scarce. The gap proves that institutions are finding it
difficult to buy the stock in quantity. After a SOS there is a Back Up to the Edge of the
Creek (BUEC) which returns to Resistance (old Resistance becomes new Support). The
BUEC is a classic place to add to the position. Move up stops on the entire position to
under the BUEC and the Resistance line. After the BUEC, a big demand bar launches
SCHW into the next phase of the uptrend.
There are no absolutes in the price action of stocks and markets. We study and
discuss tendencies. Tendencies are the product of human behavior in action, and the
sum total of all of the participants and their methods and influence. All reflected on the
tape. We study these tendencies and we prepare for any and all eventualities as best

we can. As Wyckoffians we learn to love the uncertainty and the opportunity to learn
something from every situation. This attitude puts us on the mastery path. We walk it
with humility and gratitude.
All the Best,
Bruce
Professor Roman Bogomazov and I will discuss the Wyckoff Method in a three part
webinar series (6 hours in total) on May 9th, 16th and 23rd. Roman teaches the
Wyckoff Method (online course) at Golden Gate University. We will use the Wyckoff
Power Charting blogs as the framework for our discussions with additional material
added. Each session will be recorded and will include ample time for attendees to ask
questions. The recordings will be available for your review or if you are unable to
attend the live sessions. The fee for this series is only $49. Click here to sign up now.

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