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Glossary of Wyckoff Terms
Absorption: The reduction of the floating supply caused by persistent longer term buying within a trading range.
Accumulation:
from
the Supply/Demand perspective is demand coming in to gradually overcome and
absorb the supply and to support the stock at this level.
Advance:
A rise in price or an upward movement in a stock, index, security, etc.
(Short)
Against the Box:
a protracted action in which one sells short a security which he currently owns.
The purpose of this action is that of a limiting risk during a period of
market uncertainty.
Angle
of :
That inclination of arising price trend.
Apex:
the focal point of converging support and supply lines.
(See dead center, hinge, pivot, wedge).
ASE:
or AMEX: American Stock Exchange.
Automatic
rally (AR): Following the Selling Climax one of two things may happen:
an Automatic rally (AR) or a lateral move. This is then followed again by one or
two things either a Secondary Test (ST) of the Selling Climax or a continuation
of the down move. To understand this we must go back to what happens on the
Selling Climax: The Selling Climax is caused by panicky liquidation, panicky
selling. The price is driven down to far and this creates a vacuum and as
soon as the down move has been stopped the stock should begin to rally. We call
this the Automatic Rally (AR) because it occurs automatically. Generally the
(AR) lasts for only a few days to about a week. The rally may be weak or strong.
It may be however, so weak and the supply press on the market so strongly that
instead of being able to rally well the price simply moves sideways for a couple
of days, or perhaps for as much as a couple of weeks and a lateral move will
then continue the downtrend. If there is a simple lateral move the stock
is FAR MORE LIKELY to continue the downtrend then if there is a good rally. Automatic
reaction (AR): Following the Buying
Climax is the Automatic Reaction: As with
the Automatic Rally, the time factor here is generally measured in days. The
extent of the reaction depends on how completely the demand is exhausted and how
extensive the first wave of short selling is. The (AR) will also be limited by
renewed buying buy those who see the reaction as a way of acquiring stock at
bargain prices, and by the fact that the REACTION does not have any significant
preparation in advance to sustain it.
Average:
a numerical representation which purports to reflect the mean (average) price of
a particular class of stocks. Averaging:
(1) Dollar Averaging: a periodic
investing of a definite
number of dollars irrespective of the
number of shares
involved; (2) Share Averaging: periodic purchases of the same
number of shares irrespective of the
number of dollars
required. (3) Averaging up: periodic purchases on rising scale
whose purpose generally is to permit
profits; and (4) Averaging down: periodic purchases as a price declines, which has the general purpose of lowering the mean cost of the stock.
Backup
to the edge of the creek (BEC): is normally
a potential (SOS), after jumping the creek the backup to the edge is usually the
reaction of the jumping of the creek (rally) and comes to rest (find support)
above the creek. The Backup to the edge is normally a potential Last Point of
Support (LPS). Minor Creek:
lower branch, The minor creek very often occurs in the lower or the middle part
of the T/R but is still somewhere in the T/R. Major Creek:
upper branch, The jump of the major creek is a larger move and it very often
carries the stock above the old supply levels in the T/R often into new high
ground. Bear:
A speculated who concludes that the profitable future trend will be one of
declining prices. Bear
Market: A
market condition characterized by declining prices.
Board
Room: The
room in a brokerage house in which stock prices are visually displayed. Breakthrough:
A price movement of above/below a previous supply/support area. Bulge:
A sudden expansion of price or volume. (However,
bulge generally is used in reference to volume.) Bull:
A speculator who concludes A the probable future trend will be one of advancing
in prices.
Buying
Climax (BC): The climax ending an uptrend
is called a Buying Climax because it is the end of the condition where the
buying is stronger than the selling. The buying gradually builds up &
builds up and finally comes in with a RUSH and EXHAUSTS itself on the buying
climax. The buying climax has increased volume and a widening spread as it
moves up. Following a buying climax one of two things can occur, either a
(AR) or a lateral move. This in turn is followed by one of two things: either a
continuation of the uptrend or a Secondary Test (ST). If the supply is to weak
to drive the stock down or demand to strong to allow it to go down instead of
having the (AR) the stock will have the lateral move. Usually
however, it will have some form of an (AR). That (AR) may have increased
volume, heavy volume or no volume. It may have wide price spread, or relatively
narrow price spread. Campaign:
A organized market operation for the purpose of moving the price of the stock.
Climax:
the
peak, the extreme or the end of something and as the point of highest dramatic
tension or a major turning point in the action. Some synonyms are: top,
pinnacle, height, maximum, consummation, culmination
or turn of the tide. What does a climax do? A climax stops a trend either
temporarily or permanently depending on the subsequent action. A climax is
preceded by some sort of a trend.
Close:
The last price of the security, issue, index, etc.
For specific time period. Generally,
the last price of the day. Commitment:
A market position in a stock or other trading medium. Common
Stock:
Securities which represent an ownership interest in a corporation.
If the company has also issued preferred stock, both common and preferred
have ownership rights, but the preferred normally has prior claim on dividends
and, in the event of liquidation, assets. Common
stockholders assume the greater risk but, generally, exercise the greater
control and may gain the greater
reward in the form of dividends in capital gains. Composite
Average:
An index composed of a number of stock which is used to represent the general
market. Normally constructed by
adding to prices of a limited but fixed number of stocks, adjusting for splits,
etc., then dividing by the number of stocks making up the average. Composite
Man:
The term used to refer to the sponsors or large professional interests in the
stock market, also called composite operator.
(See Preface: Explanatory Notes.) Corner:
A condition in which the available supply of stock is held by a single
speculative interest for the purpose of effecting a controlled price rise.
The purpose of a corner is that of forcing those who have sold the stock
short to pay an inordinately high-priced cover their short position. Cover:
the act of buying a security previously sold short.
(See short sale, short covering).
Creek:
relates to the flow of supply across the top of the trading range. The creek
itself is a wiggly, squiggly trend line drawn free hand through the tops of the
rallies within that trading range.
Cross
or Jump the creek (JAC):
either minor/major. To jump (rally) above the creek (drawn trendline) or flow of
supply. This jump or crossing is a Sign Of Strength (SOS). Now where is the
creek? After much searching for the answer to this question Mr. Evens finally
reached the conclusion that the CREEK is WHERE the BOY JUMPED. Applying this to
the market, the CREEK is WHERE the VOLUME CAME IN, where the EFFORT the PUSH the
POWER came in. It is important to recognize that there is no one exact way of
drawing these creeks. Do some experimenting with them, you may wish to draw the
creek lightly in pencil on your chart and continue the creek as long as it is
useful, then later, either erase the creek, or a branch of the creek, or perhaps
remove it from your chart altogether. However, leave the important creeks on
your chart as they can be EXTREMELY HELPFUL in drawing your attention to the
MEETING of supply in a T/R and in assisting in defining the probable extent of
the reaction, that is the BACK UP, which is likely to occur after a possible
crossing of the creek. It will be especially helpful in drawing your
attention to situations where a stock falls back into the edge of the creek,
because every so often it does that and every so often that little old boy scout
sort of drowns. Our problem and very often is NOT to drown with him. Culminating:
The ending of the move. Day
Order:
An order to buy or sell which is good only on the particular day on which it is
made. Dead
Center:
The focal point of converging support and supply lines.
(Also, apex, hinge, pivot wage). Deduction:
The form of logic or reasoning which proceeds from the general statement to the
specific case.
Distribution:
from the Supply/Demand perspective, Distribution area is where the Supply
overcomes Demand and stops the upward move and eventually begins the downward
move. Distribution refers to the elimination of a long investment or speculative
position and often involves establishing a speculative short position by
professional interests in anticipation of a decline of price. In the
distribution area the professional investors or speculators who had previously
had bought stock, sell there stock to the public. The public buys and it
generally buys because of good news of various sorts. Good news on the company,
its product, the economy or any news which will entice untrained people to
rationalize there buying decision. The best news of all is the advancing of the
price of a stock. Often the reason that untrained people buy is that they do not
want to miss out on the anticipated profits they think there are going to get as
the stock continues to move up. Or they may buy because the stock has reacted a
few points from the top and they think they are getting a bargain. After having
sold there long stock professionals have no reason to support the stock on reactions
and so they cancel there bits under the market, they may not only cancel the
bids but they may establish short positions in anticipation of a large decline
in price. Distribution is usually accomplished in a relatively SHORT
TIME, Whereas accumulation takes MUCH LONGER, sometimes over many years.
MAJOR distribution occurs in only a few weeks or perhaps a few months very
rarely over a several year period. Distribution is usually characterized by wide
price movements and heavy volume and GREAT activity. Dividend:
The payment designated by the Board of Directors to be distributed pro rata
among the shares outstanding. Down
Tick:
A transaction with a price lower than that of the last preceding transaction.
Effort
versus Result (E/R): if you have an effort
expressed the result should be in proportion to the effort. If a stock has been
moving up every day with a two point spread every day with ten thousand shares
and it breaks into the high ground with twenty thousand shares and a half point
spread for a couple of days straight we know supply is coming in and is
overcoming the demand. This is an effort that is not having an proportionate
result, therefore the stock is likely to be in trouble and have a reversal in
its movement. Figure
Charts:
A chart of a stock, commodity or index, which takes into consideration price
movements and fluctuations. Volume
and regular time intervals are not generally used in the construction of figure
charts. Floating
Supply:
The supply of the stock that is normally available for purchase during a given
period of time. Force
Index:
An index developed by the stock market Institute to portray the investment
factors during continuous periods of market history. G.T.C.
(Good' til canceled) a customer's order to his broker to buy or sell securities
at a specified price. The order
remains in effect until it is either executed or canceled.
Half-way-points
(1/2): are used as a measurement of
relative strength on a rally or reaction. Example, if a stock moves from $50 to
$56 the distance of six points and then reacts, the half-way-point would be half
of that six points or at $53.
Reverse the process for calculating the half-way-point on a rally following a
decline. Example, if a stock moves down from $30 to $21 a distance of nine
points. The half-way-point would be at half of that distance and is $4 ½ points
added to $21 gives a half-way-point of $25 ½. Do not expect the stock or index
to go exact half-way-point at the exact 1/8th. It is sufficient to
meet support or supply in the vicinity of that half-way-point. Always calculate
Half-way-points mathematically do not guess, because your eyes
will lead you astray. Hedge:
A condition in which both long and short positions are maintained by the same
interests. High:
The highest price of the security, issue, index, etc., for specified time
period. Generally, the highest price
of the day. Hinge:
The focal point of converging support and supply lines.
(See apex, dead center, pivot, wedge). Hypodermics:
A deliberately forced, fast markup in the price of a common stock.
The purpose of hypodermics is the stimulation of uninformed buying in
order to facilitate distribution.
Ice:
The
ICE is the FORMER SUPPORT AREA at the BOTTOM of the T/R which BECOMES a SUPPLY
AREA. The ICE is shown by drawing a wiggley trendline across the various support
points at the bottom of the range. In a manner similar to the creek which is
drawn through the supply points at the tops of the rallies in the T/R. Index
(Price):
A statistical instrument which is used to determine the trend of particular
class of security. This is not an
average. Induction:
The reasoning process or logic which begins with specific cases and proceeds to
a broad generalization. Inside
Day:
A day for which the high and low prices are, respectively, lower and higher than
those of the preceding day. Institutional
investors:
Generally, large corporate investors such as banks, insurance companies,
investment trusts, mutual funds, pension funds, colleges and universities, and
charitable foundations. Intermediate
Trend:
A price movement which has two basic characteristics.
These are (a) a move of approximately 15 % of its value and (b) the
duration of two weeks to two months. Intra-Day
Wave Charge:
A continuous line chart reflecting the price wings occurring entirely within the
single days trading (IDWC) Investment
position:
securities holdings established for investment purposes only.
Last
Point Of Support (LPS): Should have a LACK
OF SUPPLY indicated by a RELATIVE NARROWING of
the SPREAD and a DECREASE IN THE VOLUME. The comparison is between the up
move constituting the (SOS) and the REACTION FOLLOWING it, the (LPS). See the
Back-up to the edge of the creek. What if the stock has a possible (SOS)
indicated by a widening spread and increasing
volume on the move up and is then
followed by good supply on possible (LPS) indicated
by wide spread and high volume on the reaction? This CANCELS the probability
of the fist action being a (SOS) and the stock will probably continue in the
trading range for additional testing. Last
Point Of Supply (LPSY): The (LPSY) is
proceeded by the (PSY), (BC), (AR), (ST), (SOW) and then the (LPSY) occurs.
The reaction preceding the (LPSY) must be a (SOW). any possible or potential (SOW) must be confirmed, denied or left in
doubt by the SUBSEQUENT rally. If the rally
has a relative lack of demand on IT, generally
evidenced by a decreased spread and decreased volume, this would be CONFIRMATION
and PROOF of a (LPSY). However, should
demand still be strong on that rally as evidenced by good or increased volume as
well as wide or widening spread, it is usually best to regard such action as a DENIAL
of the (SOW) and such action may well leave
the interpretation of the (SOW) and the (LPSY) in
doubt. When this occurs DO NOT take a SHORT POSITION. It is better to
miss a move then to run a great risk of being wrong. The (LPSY) rally will often
stop just below the ½ way point. It is NOT particularly important where a (LPSY)
stops on the rally, however, it very often turns in the vicinity of that that ½
way point. There is no one exact point
in which to take a position. YOU MUST judge the (LPSY) as it occurs and attempt
to establish a short position as
close to the TURNING POINT as possible. Often you can tie this in with other
principles, such as: The meeting of the supply line, The previous
supply or support area and the ½ way point, Very often the (LPSY) will
come in the same area as the (PSY) or the (BC). Law
of Cause & Effect (C/E): in
order to have an effect you must first build a cause. The effect will be in
direct proportion to the cause and cannot be separated from the cause. Very
often the working of this law can be most easily seen in the figure chart.
Law
of Supply & Demand (S/D): When
demand is stronger than supply prices will rise. When supply is stronger
than stronger than demand prices will fall. Limit
Order:
An order to buy or sell only at a specified price or at one more favorable than
the specified price. Line
of Least Resistance:
The trend of security prices, whether it be advancing or declining. Liquidation:
The process of converting securities and/or other property into cash. Locked-In:
The psychological state of mind which exists when an individual believes that he
cannot afford to liquid a security position. Long:
The ownership of securities. Long-sale:
The sale of along security position. Long
Terms:
Financially, it is considered to be a five-year investment; the tax definition
is six months. Low:
The lowest price of the security, issue, index, etc., for a specific time
period. Generally, the lowest price
of the day. Maintenance
Margin:
The minimum margin required in order to maintain a previously established
position. Margin:
The amount of money deposited by a customer when he uses credit to buy
securities, the balance being financed or advanced by the broker. Mark-Down
(MD): A sustained downward price movement. Market
Order:
An order to buy or sell at the best price available at the time the order is
received at the appropriate trading post.
Mark-up
(MU):
from the Supply/Demand perspective is, Demand that is greater than Supply. Momentum
Index:
An SMI index to measure speculative market forces. NYSE:
Odd
Lot:
An amount less than the established round lot for any class of security. Option:
A contractual right to buy or sell a security at a specified price within the
specified period of time. Optimism
Pessimism Index:
An index developed by stock market Institute which reflects the optimism due to
buying and pessimism due to selling during any specific period market history.
Ordinary Shakeout (OS): the DIFFERENCE between the Terminal Shakeout and a ordinary Shakeout is that the ordinary Shakeout occurs in an UPWARD trend. The Terminal Shakeout occurs at the END of the ACCUMULATION area and at the END of a TRADING RANGE or a SUPPORT AREA. While the ordinary Shakeout occurs in an UPWARD trend. An ordinary Shakeout maybe defined as a sharp DOWNWARD THRUST occurring in an UPWARD TREND without extensive previous preparation. It is executed for the purpose of buying all the stock possible from WEAK or VULNERABLE holders, it is PRECEDED By an UPWARD move. The ordinary Shakeout is characterized by PRICE WEAKNESS and usually an INCREASED VOLUME. In other words a WIDE SPREAD and some INCREASE in VOLUME. However, the VOLUME maybe HIGH, MEDIUM or LOW. When there is SUPPLY on the Shakeout itself it must be tested by a SECONDARY TEST. The secondary test should have a NARROW SPREAD and a DECREASED VOLUME compared to that of the ORDINARY SHAKEOUT. This indicates that there was less SUPPLY on the secondary test then there was on the Shakeout and the buyers then KNOW that the stock is AGAIN prepared to MOVE UP with relative SAFETY. Overbought
( Oversold:
(OS) the
stock or the market can go through accumulation. Pivot:
the focal point of converging support and supply lines.
(See apex, dead center, hinge, wedge). Position:
Holdings of securities, whether long and / or short.
Position
Sheet: A
tally sheet showing the trend positions of specific securities. The position
within a trend shows where the price (position) is in the trend. Preferred
Stock:
Stock which has a prior claim to earnings and/or dividends over the common
stock. It is secondary to bonds in
the other floating debts. Preliminary
Supply (PSY): is the FIRST important
SELLING (or meaningful reaction)
which is part of the distribution area (this indicates the first important wave
of supply or selling is being brought to market) and which comes in to stop the
upward trend TEMPORARILY. Usually there’s some form of a Buying
Climax which stops the move and that is followed by a REACTION,
(PSY), which has pronounced WEAKNESS
or volume or preferably both (wide spread & high volume). The buying
climax (BC), is part of the Preliminary Supply (PSY) this NORMALLY HAS LESS
VOLUME THAN THAT ON THE FINIAL BUYING CLIMAX. The price reached on the (LPSY)
after a sign of weakness very often is in the same area reached on the (PSY).
Analytically the significance of the (PSY) is that if the entire area is
distribution. That distribution may have begun in the area of the (PSY). Note:
sometimes the (PSY) and the (BC) occur on the largest and longest leg of an
upwards thrust of the uptrend. Preliminary
Support (PS): is a form of a selling climax and is an action in which important demand
comes in to stop the down move even temporarily. The first important rally in
a downtrend is the (PS) it may occur after the first oversold condition, and is
especially likely as the stock or the market reaches its downside objective.
The importance of the (PS) is as a warning that the end of the down move may be
near. The significance of the (PS) is that if the entire base is accumulation
the accumulation may have begun at the (PS) and continued throughout the base.
Preliminary Support and the Last Point of Support (LPS) often occur at the same
price level. The (PS) is sometimes obscured due to the violence of the price
action and sometimes it is virtually missing. But usually on accumulation
some form of (PS) is present. Primary
Growth Trend:
sometimes it is a downward slanting trend. This is the general direction or rate
of growth the market: an index, a stock, or the economy, or company is taking. Price/down:
There are two ways price can go down: price can go down and have an increased
supply meet a superior force of demand at that point. Or price can go down and
simply drift and drift and drift until it stops and ultimately rallies.
Mentioned on tape #2 side B: along with reverse trend lines.
Primary
Distribution:
The initial liquidation of along position.
Primary Growth Trend: sometimes it is a downward slanting trend. This is the general direction or rate of growth the market: an index, a stock, or the economy, or company is taking.
Principle:
is a comprehensive and fundamental law,
doctrine or assumption. It is an unchanging rule.
Process
of Rotation:
The principle that all securities of class to do not prepare, advanced, or
decline at the same time. Some
stocks lead the various stages while others lag.
Profit/Risk
Ratio: Should never be less than 3:1, This
means that for every point below the purchase price the stop is placed, three
points of profit are anticipated. So for a stop that is placed three points
below the purchase price, nine points of profit are anticipated. It is BETTER
PRACTICE to LEAVE your STOP underneath the PRIOR support area and IF NECESSARY
GET-OUT BEFORE that stop is reached. Puts
and Calls:
Options which give the right to buy or sell a fixed amount of the certain stock
at a specified price within a specified time.
A put gives the holder the right to sell and call gives the holder the
right to buy. Pyramid:
The use of accrued profits to enlarge a speculative position.
Rally:
A short term advance in the price of any
securities or class of securities. When rallies, or uptrends are stronger than
the reactions, Demand is stronger than Supply. You will be able to judge the
Supply & Demand on basis of the Price action, Volume and Time. There is a
widened spread and an increasing volume on the rallies. On the reaction there
will be decreased volume and a comparatively narrow spread
compared to the rally, indicating less selling on the reaction then there
was buying on the upside. In an up-trend you should not have prolonged price
weakness or massive dumping of stocks on the reactions. Reaccumulation:
Takes place within a sizable upward trend when a stock goes into a trading range
and in the process builds a count for a higher objective, usually confirming a
prior base count. It goes into a resting stage and the professionals continue to
absorb the supply. Also called a STEPPING STONE. Reaction:
A short term decline in the price of any
securities or class of securities. When reactions, or downtrends are stronger
than the rallies, Supply is stronger than Demand. You will be able to judge this
on the basis of the Price action, the Time and the Volume. Volume should
remain good, strong, on the downside, the
rallies however should be relatively weak indicating a lack of Demand. There
should not be wide spread or increased volume or sustained increased volume and
it might take quite a bit of time on the rallies.
The main point is that you have a unbalanced condition in the Supply and Demand
with Supply good on the downside and a lack of Demand, weak Demand on the rally.
Reverse
Trend lines (RTL): There
are two kinds of trendlines: the normal use and the reverse use. In the normal
use of trendlines in an upward trend we draw the support line first through two
consecutive reactions. The supply line is drawn second through the rally that is
between the two consecutive reactions, and parallel to
the support line. With the reverse use of trend lines used in an upward
trend, we draw the supply line first, through two consecutive rallies followed
by a support line drawn second through the reaction that is between the two
consecutive rallies, and parallel to it. In a downtrend using the reverse use of
trendlines the support line is drawn first through two consecutive support
points and the supply line is drawn parallel to it through the top of the rally
occurring between those two support points. The importance of the reverse use
of trend lines is that it is determined by points a which the opposition came in
to stop the move. The reverse use of trend lines is drawn through where it
is stopped, where the opposition came in and actively stopped the
trend, to stop it and reverse it even on a temporary basis. Later on demand might come in at the same angle to stop the move.
Round Secondary
Distribution:
The liquidation of a long security position occurring after primary distribution
but prior to the next mark-down phase. A
plateau in a big down move.
Secondary
Test (ST): Immediately follows the (AR). There
should be less selling than on the Selling Climax. Evidenced by the decreased
price weakness, the narrowing of the Spread and especially by the Decreased
Volume. At that point the down move has been stopped. The stock may
go through redistribution, accumulation, or a trading range in which nothing of
importance is going on. There may be
repeated secondary tests depending upon the ability of the professionals to
absorb the supply and the continued existence of that supply. Securities:
Stocks, bonds, commodity futures contracts, or other issues which may be traded. SEC:
The securities and exchange commission established in 1934 by Congress to
regulate the investment industry. Security
Position:
Securities held long and/or short by investors and/or speculators.
Self
Reliance:
learn to rely on yourself alone. This is a lone wolf business. Learn to make
your own decisions, discuss them with no one. Stick to your guns and follow
through until the commitment is completed. Selling
Climax (SC):
A situation characterized by the highest intensity of speculative supply
occurring within a downtrend. This situation occurs only after a move has been
in effect for some time. This condition marks the end or the approaching end of
a particular downtrend. This panic selling creates an extreme expansion of
the price spread and an expansion of the volume, this action may occur over
one day or over several days. If it does NOT HAVE THIS IT IS NOT A SELLING
CLIMAX. The Shakeout:
A deliberately forced price reaction, whose purpose is that of stimulating
public selling in order to facilitate the accumulation of speculative positions.
See also Ordinary Shakeout and Terminal Shakeout. Short
Covering:
Buying the stock to eliminate or close out a short position. Short
Position:
Securities and/or commodity future contracts sold short. Short
Sale:
sale of a borrowed stock by a person who believes the price will decline.
I.e. you instruct your broker to sell short 200 shares of XYZ.
Your broker borrows the stocks so he can deliver the 200 shares to the
buyer. The monetary value of the
shares borrowed his deposited with a lender.
You are later required to cover your short sale by purchasing the same
amount to return to the lender.
Sign
Of Strength (SOS): is an ACTION which shows
that DEMAND is in control. The (SOS) should have GOOD DEMAND on the UP MOVE, a
WIDE SPREAD and INCREASING VOLUME
on the UPSIDE. Now let us deal briefly with the (SOS). The
Sigh of Strength and the Crossing of the Creek are often two ways of looking at
the SAME ACTION and the BACK UP to the edge of the CREEK very often is the (LPS)
Last Point of Support. This (SOS) is usually is preceded by a T/R and a
stock can continue in a T/R until it either has a (SOW) or a (SOS). The (SOS)
shows that DEMAND is in CONTROL the Price & Volume characteristics are that
it has WIDENING SPREAD and an
INCREASE in VOLUME evidence of the
good DEMAND. This is PROVEN and followed by the REACTION to the (LPS),
that (LPS) should have a NARROWING of the SPREAD and a DECREASED of VOLUME compared
to the (SOS) indicating the LACK of SUPPLY on the REACTION Sign
Of Weakness (SOW): is an action which shows
that SUPPLY is in control. The reaction will decline with a widening
spread, increased price weakness,
and increased volume, evidence of
increased and heavy selling, this is BEARISH. The (SOW) is usually
proceeded by a T/R. If the T/R was in an uptrend it would have been stopped by
the (PSY), (BC), (AR), (ST). The T/R
will end, on the far right hand side, it may end its move with a classic (UT) or
(UTAD) or it may NOT. It may
simply have a (SOW) and a (LPSY) with perhaps lower tops and lower bottoms. Any
possible or potential (SOW) must be
confirmed, denied or left in doubt by the SUBSEQUENT rally. The critical
thing is NOT HOW FAR the stock rallies, the critical thing is HOW it
RALLIES. If it rallies with a gradual decrease in demand, evidenced
by a narrowing spread and decreased volume, and with a lower top this
COMPARATIVE lack of DEMAND would PROVE and CONFIRM that the previous reaction
was a (SOW). Thus DO NOT take a speculative position until you see an (UT) or an
(UTAD), or where there is no (UT), the first place to take a position is on the
(LPSY) after the (SOW) and aim to pyramid with the coming trend. Speculation:
To assume a market risk and expectation of gains; especially, to buy or sell in
expectation of profiting from market fluctuations.
Spring:
a spring is a refinement of Mr. Wyckoff ‘ s concept of a Terminal Shake-Out
and grew out of that concept. A spring is a penetration below a previous support
area which enables one to judge that quality and quantity of that supply on that
penetration. The CRITICAL thing that is shown by the SPRING or the TERMINAL
SHAKEOUT is the AMOUNT of SUPPLY
that COMES OUT on the DRIVE to NEW LOW GROUND and HOW WELL that SUPPLY IS
ABSORBED. Remember this vital point, it is important. The main difference
between the spring and the terminal shake-out is how far it penetrates into new
low ground. Example: in a $50 dollar stock if the drive into new low ground is 4
or 5 points and then it turns around, we would call that a terminal shake-out.
However, if it reacted or penetrated ¾ or a point, a point or a point and a ½
or a much shorter penetration we would call this a spring. Additional
definitions: As the stock goes into new low ground one of two things will
happen. Either overwhelming supply will come in or no supply. Overwhelming
supply is a 1-spring, it is
evidenced by a wide open break in price action and very heavy volume.
A 3-spring is with no significant price weakness and low
volume on the penetration into new low ground. There is a very large area between these two extremes. We call
these number 2-springs and a 2-spring is very similar to a terminal
shake-out in that both have supply and both must be tested by a secondary
test. It is VERY
IMPORTANT to understand that there is NO CLEAR CUT LINE of demarcation between a
#1 spring and a #2 spring, a #2 spring and a #3 spring. The CRITICAL FACTOR is
NOT the TERMINOLOGY, the CRITICAL FACTOR is YOUR UNDERSTANDING of the
relationship of
SUPPLY to DEMAND in the BASE area and on the SPRING. #1
SPRING: The #1 SPRING has OVERWHELMING
SUPPLY which is indicated by a EXTREME PRICE WEAKNESS and heavy selling. The
PRICE and VOLUME characteristics are that there is a WIDE SPREAD and
HEAVY INCREASE in VOLUME. This is EVIDENCE of an ABUNDANCE of SUPPLY. The
stock goes through the T/R on the DOWN SIDE and continues DOWN until the
DOWNTREND can FINELY be HAULTED. If the stock has been under accumulation,
usually it will REQUIRE EXTENSIVE further PREPARATION before the stock is READY
TO MOVE OUT of the accumulation area. Usually however, the #1 SPRING is PRECEDED
by at least MINOR DISTRIBUTION and OFTEN, INTERMEDIATE or MAJOR DISTRIBUTION.
The #1 SPRING is FAR MORE LIKELY to occur in stocks which are in MAJOR and
SUSTAINED DOWNTRENDS then they are to occur in UPTRENDS. HEAVY SUPPLY and
small demand a #1 spring. #2
Spring: now there’s a VERY LARGE AREA
in-between the #1 and the #2 SPRING
in which there is SOME SUPPLY. We call this a #2 SPRING. The SUPPLY on
the #2 SPRING is evidenced by SOME INCREASE in PRICE WEAKNESS, in other words
SOME INCREASE IN THE WIDENING of the SPREAD as it goes INTO NEW LOW GROUND and
SOME INCREASE in the VOLUME over the GENERAL level of TRADING. SUPPLY is
not absent, it is NOT OVERWHELMINGLY ABUNDANT. That
SUPPLY will either be ABSORBED, in which case it will be a #2 plus
SPRING, or a 23 spring, (supply on the #2 spring itself and then a LACK of
SUPPLY on the S/T), or it will not be absorbed and SUPPLY will persist
and persist and persist driving the PRICE DOWN and will have the SAME effect as
a #1 SPRING. This alternative we call a #2 minus
SPRING, or a 21 spring, (the weight of SUPPLY is increased & increased until
the demand simply cannot handle it). The #2 minus SPRING has the SAME effect as
the #1 SPRING in that the SUPPLY persists and persists and persists and DRIVES
the PRICE of the stock DOWN, DOWN and DOWN until it is finally halted and has to
start a NEW SUPPORT LEVEL all over again. SUPPLY DEMAND is more in balance with
a #2 spring, hence the need for a secondary test. Incidentally the PRICE and
VOLUME indications on a #2 SPRING are LESS LIKELY to be CLEAR CUT then on a #1
spring or a #3 spring. The classic illustrations are FEW and FAR in-between.
This is why it is necessary to STUDY MANY EXAMPLES and to have examples from
different periods of market history. #3
Spring:
The second alternative is that NO SUPPLY is DUMPED on the market. No INCREASE in
SUPPLY can COME OUT on the DRIVE into NEW LOW GROUND we call this a #3 SPRING.
The #3 Spring is evidenced by lack of a INCREASE in the general level of
trading. Any INCREASE in volume if at all is very, very MINOR. And there is a
lack of IMPORTANT PRICE WEAKNESS as it goes into NEW LOW GROUND and the
SPREAD does NOT materially WIDEN. Small supply and HEAVY DEMAND a #3
spring. Springboard:
A condition in the price movement of a stock that has completed preparation and
has been brought to a point where the stock may move into a mark-up for a
mark-down period.
Stop
Limit Order:
an order to buy or sell which becomes a limit order as soon as the stock's price
reaches or sells through a specified stop price. Stop
Order:
An order to buy or sell which becomes a market order as soon as the price of the
stock reaches or sells through the specified price. Straddle:
Going long in one security or option and short in another. Strength:
A security or class reflects strength when it's price shows the ability to
advance. Strong
Technical Position:
Condition in which normal available demand exceeds floating supply. Supply
Line:
In a downtrend in line connecting at least two important points of supply. Taking
a Position in a Stock:
if important accumulation or distribution in a stock is going on it is very
difficult to hide it, this will normally show up on the charts. When it is not
clear stay out! When indications are clear take a position with the timing and
the profit risk ratios in your favor. Your first job is to protect your capital,
your second job is to obtain a profit when the risk is in your favor. Tape
Reader:
A person trained to determine the characteristics of market fluctuations, using
data which he derives from the ticker tape. Technical
Position Barometer:
A chart which graphs the number of stocks in the various positions as determined
by the Wyckoff Position Sheet. Technical
Rally:
A technical rebound. A part of the
typical selling climax. (Automatic
rally) Technical
Reaction: Opposite of technical rally
-- part of the typical buying climax. (Automatic
reaction)
Terminal
Shakeout
(TSO): is a sharp downward thrust through a previous support area. A spring is
a refinement of Mr. Wyckoff ‘s concept of a Terminal Shake-Out and grew out of
that concept. It is executed for the purpose of buying all the stock possible
from weak or vulnerable holders. It is PRECEDED by a TRADING RANGE or a
SUPPORT LEVEL or at the end of ACCUMULATION area. It is FOLLOWED by an
attempted to begin the markup phase of the cycle. The Terminal Shakeout is a
drive down through the support level for the purpose of SHAKING-OUT all of the
people who can be scared-out or forced out of the market and forced to sell. The
CRITICAL thing that is shown by the Terminal Shakeout is the AMOUNT of SUPPLY
that comes OUT on that Shakeout and whether or not that SUPPLY is ABSORBED.
Remember this vital point, it is important. Terminal
Thrust:
A temporary bulge through the top of the trading range which fails to hold.
Thrust:
measures
the price progress the stock or index makes on each wave within the trend. The
thrust is the price difference between consecutive tops in up trends, or between
consecutive bottoms in down trends. To measure the thrust we draw a series of
horizontal lines at the level the highs and lows are reached on the drives
within the trend and connect them with a vertical line. Thrust Movement: A sharp run-up out with an area of distribution; or a temporary bulge through the top of a trading range which fails to hold (Synonym: upthrust).
Trading
Range(TR): a condition characterized by
temporary price trends, which are offset by ensuing moves in the opposite
direction, and by a persisting equilibrium in the supply-demand relationship. Behavior
of: Generally in the first part of the trading range the price swings are
rather wide. Then in the later part of the trading range the price action
usually begins to narrow down. The stock gets dull. What happens to the
volume or the general level of trading, usually in the early part of this range
there is rather high volume sometimes rather erratic volume both the price and
volume action maybe somewhat erratic and very difficult to analyze. Then in the
latter part the closer you get to the end of the trading range or leaving the
trading range the volume begins to dry up. As the floating supply or the flow of
orders come into the market and begin to decrease the general level of the daily
volume should decrease. Actually you do not know for certain that the T/R is
distribution until it goes through the testing process as in 3rd
area. the T/R maybe accumulation,
distribution, or nothing, nothing being an area in which no one is preparing for
a large move, thus a stock may remain in the T/R indefinitely until it has a
(SOS) followed by a (LPS) indicating an Upward move, or a (SOW) followed by a (LPSY)
indicating a Downward move. Furthermore the early part of the T/R maybe nothing
and only the later part of distribution. This is why it is extremely important
that you NOT establish a long or short position in the T/R unless the stock has
clear indications of leaving the T/R and beginning a NEW TREND. Trend:
to have or to take a particular direction,
it is the underlying or prevailing tendency of inclination of movement-a
tendency to move in a particular direction. There are three primary types of
trends classified as direction of movement: a upward trend, a downward trend and
a sideways trend or treading range. Remember, that the longer that the trend is
in progress and the nearer you are to the end of the trend the more risk attends
buying, or selling short on the corrections around the ½ way area. Your
greatest profit potential and your least risk will occur when the stocks are
leaving the accumulation, or distribution areas or are very early in the trend,
it is at this point where your profit risk ratio will be the greatest and you
will be able to use liberal stops. A trend may be corrected by an ordinary
shake-out. Trend
lines (TL): in an uptrend the bottom line
is called the support line and the top line is called the supply line. In a
downtrend the top line is called the supply line and the bottom line is called
the support line. In a trading range the bottom line is called a support line
and the top line is called a resistance line. The breaking of a trend line may
result in establishing a slower or faster trend in the same direction or in a
completely new trend. The Supply/Demand relationship will determine the
continuing trend, it can change rapidly and must be watched closely. The price
failing to reach one line in a trend channel during rallies & reactions
leaves the other vulnerable to being broken. A helpful tool to use is to draw an
arrow from a stopping point to the trend line to indicate the failure to reach
that particular trend line. Trends
of four primary kinds: 1)
The intraday
2)
The minor 3)
The intermediate 4)
The major INTRADAY
TRENDS: are caused by very small fluctuations those fluctuations occurring
within a day. There maybe several of
these occurring within one day. Intraday trends are usually a day or two in
duration. MINOR
TRENDS: are made up usually of three or more intraday trends and are moves of up
to approximately ten percent of the price of the stock. Usually they last up
to a couple of days to a couple of weeks and are moves of up to
approximately 10% of the price of the stock. INTERMEDIATE
TRENDS: which are made up of three or more minor trends and are movements of
around fifteen to twenty percent of the stock. They usually run for a
couple of weeks to a couple of months and are movements of around 15% to
20% of the stock. MAJOR
TREND: is made up of three or more intermediate trends and is a movement of over
twenty-five percent of the price of the stock. Usually major trends will last
for several months or perhaps much longer and is a movement of over 25%
of the price of the stock. Upthrust
(UT): : An Upthrust is a sharp price
movement ABOVE a prior supply level which does NOT HOLD, but immediately reacts below that
previous level. Usually on the Upthrust the spread will be narrow and the
volume will be increased, this is evidence of the supply overcoming demand.
Suppose a stock moves up from $50.00 to $51.00 and it takes 10,000 shares to do
it and then moves to $52.00 and it takes 20,000 shares to do it. The volume,
the supply has increased in strength relative to demand. If the volume
doubles the price progress should be double and when it does not the inference
maybe drawn that the SUPPLY is OVERCOMING the DEMAND. Suppose a stock moves
up one point on 10,000 shares and then moves up a ½ point on
20,000 shares, here the narrowing of the spread and the supply coming in to
overcome the demand is much more emphatic. This usually is what occurs on a Upthrust. The confirmation that it is
an Upthrust is in the promptness and in the manner in which it reacts, it should
react promptly to show that the attempt to leave the T/R on the Upside has
failed and generally it will react with
either a lack of demand or with the pressure of supply coming in on the downside.
The Upthrust itself is the sign of weakness (SOW) and the Last Point of
Supply (LPSY) all in the same action. It is normally followed by a more
important (SOW) and a (LPSY). Upthrust
After Distribution (UTAD):
The Upthrust after distribution is a special type of distribution in which
the stock goes up! Stops going up, builds a cause and then tries to leave that
T/R on the upside, fails and then begins the downtrend. In applying the
rules you must use some judgment and some flexibility. The Upthrust After
Distribution is a special market phenomena or a principal
which Mr. Evens defined through his Vertical
Line Charts:
charts which graph the volume, high, low, and closing prices for the day, week,
month, or year of any security or class of securities.
Volume:
What is the difference between climax VOLUME and that which is known as BREAKOUT
VOLUME or ABSORPTION VOLUME ? Both generally have an WINDENING SPREAD and
INCREASED VOLUME. However, the CLIMAX VOLUME is stopping a trend which is
out in open territory and has been in progress. ABSORBTION VOLUME (
progress/price action & push/volume) however, occurs with a WIDENING SPREAD
and INCREASED VOLUME as the stock is breaking through a previous SUPPLY AREA and
is simply absorbing ALL of the SELLING that takes place as it moves up to NEW
HIGH GROUND. This process also occurs in reverse on the downside. Volume
Off The Bottom:
Volume off the bottom is caused by the professional man simply absorbing all the
supply thrown off the market and moving the stock UP. It usually indicates a
turnaround. Warrants:
Rights to buy a stock a specific price. generally,
issued for longer periods of time than ordinary stock subscription rights.
Wave:
Intraday,
Minor, Intermediate, Long term, Fluctuations that build-up & build-down and
form trends. Actually every upward or downward swing in the market whether it
amounts to many points, or only a few points, or fractions of a point consists
of numerous buying & selling waves. These have a certain duration, they run
just so long as they can attract a following. When this following is exhausted for
the time being that wave comes to an end and a contrary wave sets in. These
waves represent the shifting relationship of Supply to Demand. Weakness:
The ability of price to decline. Weak
Technical Position:
A condition in which normal available demand is exceeded by the floating supply. Wedge:
The focal point of converging support and supply lines.
(See apex, dead center, hinge, pivot.) Whipsawed:
A situation in which a speculator is repeatedly wrong the matter what he does. It
usually results from buying at the Thompson's selling at the bottoms. Up-Tick:
A transaction with the price is higher than that of the previous transaction. Zero-Minus
Tick:
The transaction price identical to the preceding price (S.) which itself had
been a down-tick.
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