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.
Re-accumulation: Ta k e s place within a sizeable 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 Lot: A unit of trading. On the New York Stock Exchange the unit of trading is, generally, 100 shares in stocks and $5, 000 par value in the case of bonds.
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 Wyckoff principle of the selling climax does not always occur at the end of every decline. All that the (ST) of the (SC) does is STOP the DOWN MOVE.
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 ([PS), that (LIDS) 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 % or a point, a point or a point and a % 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 SIT), 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 6I,KiNu, or a 21 spring, (the weight 01 buFHLY 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 its 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)
Technometer : An index developed by the Stock Market Institute for the purpose of indicating normal extremes in the supply-demand conditions.
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 arid 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 TiR 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 TiR 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 trading 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 % 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.
The four main kinds of trends:
1. 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.
2. 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.
3. 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.
4. 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.
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 faliure to reach mat particular trend line.
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, lithe 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 % 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 Wyckoff studies. Perhaps the most important problem that you will have with the Upthrust After Distribution (UTAD) is that you must avoid looking for examples, or expecting examples of the (UTAD) to occur all the time, they simply DO NOT. However when they do occur the (UTAD) can be an extremely helpful and profitable tool. Let us read the rule itself. After a stock index or a commodity has moved up. has Climaxed, has then moved laterally and built a POTENTIAL cause and is then moved into new high ground on a increase in volume and a relative narrowing of the spread to then return to the AVERAGE level of closes would indicate that the entire lateral level was NOT accumulation, but was distribution instead. MEMORIZE THIS RULE, in Mr. Evan's original rules he stated: it moves sideways for a period of four to twelve weeks. However, to put these constraints on the rule has proved to limit the understanding of this excellent rule. Therefore we have modified the rule and have used: "The building of a potential cause". The only other change in the rule is that we now say that it has moved into new high ground on a "relative" narrowing of the spread, we have added this word relative because a widening or a narrowing of the spread is RELATIVE to the VOLUME. The spread MUST BE COMPARED to the VOLUME. Every word in the rules for the (UTAD) had been designed for a purpose.
Up-Tick: A transaction with the price is higher than that of the previous transaction.
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 WIDENING SPREAD and INCREASED VOLUME. However, the CLIMAX VOLUME is stopping a trend which is out in open territory and has been in progress. ABSORPTION 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.
Zero-Plus Tick: A transaction price identical to the preceding price (S.) which itself had been up-tick. 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 no matter what he does. It usually results from buying at the tops and selling at the bottoms.
Zero-Minus Tick: The transaction price identical to the preceding price (S.) which itself had been a down-tick.
Zero-Plus Tick: A transaction price identical to the preceding price (S.) which itself had been up-tick.