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Anatomy

Wyckoff Anatomy of a Trading RangeRichard Demille Wyckoff (1873–1934) was an early 20th-century pioneer in the technical approach to studying the stock market. He is considered one of the five “titans” of technical analysis, along with Dow, Gann, Elliott and Merrill. Analyses of Trading Ranges One objective of the Wyckoff method is to improve market timing when establishing a position in anticipation of a coming move where a favorable reward/risk ratio exists. Trading ranges (TRs) are places where the previous trend (up or down) has been halted and there is relative equilibrium between supply and demand. Institutions and other large professional interests prepare for their next bull (or bear) campaign as they accumulate (or distribute) shares within the TR. In both accumulation and distribution TRs, the Composite Man is actively buying and selling - the difference being that, in accumulation, the shares purchased outnumber those sold while, in distribution, the opposite is true. The extent of accumulation or distribution determines the cause that unfolds in the subsequent move out of the TR. PS—preliminary support , where substantial buying begins to provide pronounced support after a prolonged down-move. Volume increases and price spread widens, signaling that the down-move may be approaching its end. SC—selling climax , the point at which widening spread and selling pressure usually climaxes and heavy or panicky selling by the public is being absorbed by larger professional interests at or near a bottom. Often price will close well off the low in a SC, reflecting the buying by these large interests. AR—automatic rally , which occurs because intense selling pressure has greatly diminished. A wave of buying easily pushes prices up; this is further fueled by short covering. The high of this rally will help define the upper boundary of an accumulation TR. ST—secondary test , in which price revisits the area of the SC to test the supply/demand balance at these levels. If a bottom is to be confirmed, volume and price spread should be significantly diminished as the market approaches support in the area of the SC. It is common to have multiple STs after a SC. Note: Springs or shakeouts usually occur late within a TR and allow the coin or stock’s dominant players to make a definitive test of available supply before a markup campaign unfolds. A “spring” takes price below the low of the TR and then reverses to close within the TR; this action allows large interests to mislead the public about the future trend direction and to acquire additional shares at bargain prices. A terminal shakeout at the end of an accumulation TR is like a spring on steroids. Shakeouts may also occur once a price advance has started, with rapid downward movement intended to induce retail traders and investors in long positions to sell their shares to large operators. However, springs and terminal shakeouts are not required elements. Test —Large operators always test the market for supply throughout a TR (e.g., STs and springs) and at key points during a price advance. If considerable supply emerges on a test, the market is often not ready to be marked up. A spring is often followed by one or more tests; a successful test (indicating that further price increases will follow) typically makes a higher low on lesser volume. SOS—sign of strength , a price advance on increasing spread and relatively higher volume. Often a SOS takes place after a spring, validating the analyst’s interpretation of that prior action. LPS—last point of support , the low point of a reaction or pullback after a SOS. Backing up to an LPS means a pullback to support that was formerly resistance, on diminished spread and volume. On some charts, there may be more than one LPS, despite the ostensibly singular precision of this term. BU—“back-up” . This term is short-hand for a colorful metaphor coined by Robert Evans, one of the leading teachers of the Wyckoff method from the 1930s to the 1960s. Evans analogized the SOS to a “jump across the creek” of price resistance, and the “ back up to the creek ” represented both short-term profit-taking and a test for additional supply around the area of resistance. A back-up is a common structural element preceding a more substantial price mark-up, and can take on a variety of forms, including a simple pullback or a new TR at a higher level.
BITSTAMP:BTCUSDEducation
by TaherJalili
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Anatomy of the Great Depression 2020COVID19:CONFIRMED Dear friends, More and more people are starting to speak of a real economic crisis, but it’s not what we should be frightened of. What we should really fear is an economic depression. Economic cycles Every economist knows about the theory of economic cycles. I’ve tried to represent these cycles in a schematic way in the chart above. We see 4 main stages there: Growth, yellow stage Peak, green stage Crisis, red stage Depression, black stage This cyclic recurrence is a natural economic process, which can’t be avoided because of both regular economic processes and exterior factors. There can be many reasons for these cycles’ formation, starting with bursting debt bubbles and finishing with wars, revolutions and epidemics. The main thing common to all these reasons is a demand shock, i.e. the moment when the number of buyers falls sharply. As a result, goods production is no longer demanded, producers make less profits and can’t pay wages, people have less money for buying goods. This is a vicious circle. This picture is very simplified, of course, but it shows the main mechanism of crisis development and the measures that developed countries take in order to avoid severe consequences. I described the measures taken by the US government to combat the economic crisis in my privet analytical article. Now you understand why those $2 trillion were directly or indirectly aimed at supporting consumers. Because consumers are the engine of market economy. Let’s get back to the cycles. We’re currently at the beginning of the crisis stage triggered by COVID-19. A demand shock is now present all across the globe as people have to isolate themselves or they are under quarantine. The depth of the crisis depends on the duration of the quarantine. The longer people stay jobless, the more the load on households and simple consumers will be, the more savings will be spent on food. The more time the consumer doesn’t buy goods, the higher the debt load on businesses is. The higher the debt load on businesses, the more bankruptcies and credit arrears. The more credit arrears, the more load on banks and the higher likelihood of their bankruptcy. This is a vicious circle! Bank failures mean that investors lose their deposits. Lost deposits result in a demand cut. Demand cuts lead to businesses going bankrupt. Finally, we have a huge number of the unemployed, of bankrupt businesses and banks. In essence, this process is the active crisis stage. The state that follows this shock is called “a depression”, when people can’t find a new job and earn their living for a long time. The good news is that after all these terrible times, people are retrained, find a job, set new businesses or reorganize previous ones. In other words, the economy starts reviving and developing. The cycle gets into the growth stage and then reaches a new historical peak. Development cycles of COVID19 and economic crisis scenario The chart above shows the number of coronavirus cases and a future development forecast. As of March 31, the number of cases reached 800,000 worldwide. According to various experts, the peak is expected in May, with a total of 2-3 million cases (bold dotted line). Then the dynamics will slow down through global quarantine measures and the population’s natural immunization. Once the percentage of cases decreases, many countries will eagerly lift lockdowns and restrictions on movement. As a consequence, another wave of coronavirus may take place and last till September. This is the time by which clinical trials of a COVID-19 vaccine are expected to have been completed and then the vaccine will be launched into a series production. Thus, the active crisis stage may last till the end of September, based on this scenario. Obviously, not only businesses, but also many governments don’t have enough safety margin to endure such a long crisis. Considering a high level of globalization and interdependency of consumer-producer chains worldwide, even one country’s default may start a chain reaction. Just remember the Greek economic crisis of 2015 which caused fever in whole Europe. It’s after that case Great Britain got in turmoil, which led to the Brexit referendum in 2016. Evidently, the seats of economic crisis will mainly be commodity-dependent countries, because besides the demand shock related to the pandemic, they will suffer budget deficits caused by a sharp slump of commodity prices, oil prices above all (check this article for my long-term oil forecast). I estimate that low oil prices are a global trend. It’s very likely that commodity prices won’t be growing until the end of 2020, based on the scenarios of pandemic development and its economic consequences. If the worst scenario is realized (red wavy arrow), the Brent price may fall to 9-10 USD a barrel (the support level of 1998). The victims of this double strike will apparently be Gulf countries (Saudi Arabia, UAE, Oman, Kuwait, Qatar), CIS countries (Russia, Kazakhstan, Azerbaijan, Turkmenistan) and South America (Bolivia, Columbia). Without even mentioning Venezuela with its long-lasting economic crisis. Start of the Great Depression 2020 The scenario looks quite disturbing. To forecast the length and the depth of the economic crisis, let’s get back to history. A similar economic crash was in 1930, in the times of the Great Depression. The reasons of that crisis were the First World War and the Spanish flu pandemic. The consequences were the US agricultural crisis and the crash of the whole banking system, because the main borrowers were bankrupt farmers. The chart above shows the 12-month time frame for Dow Jones where 1 candlestick equals 1 year. According to the theory of economic cycles, we see: Short-term cycles (2-3 years) - pink arrows Medium-term cycles (7-10 years) - violet arrows Long-term cycles (70-100 years) - red arrows. Surprisingly, the stages of the three cycles coincided in 2020. The last recession year was 2014 when many countries were going through economic stagnation and some countries (Greece with its debt crisis and Russia with its currency crisis) were on the edge of a large-scale crash. That period refers to short-term cycles. Six years have passed since then and a new recession within a new short-term cycle seems natural. The well-known mortgage crisis of 2008 that affected the whole world refers to medium-term cycles. Twelve years have passed since then and again, a new slump looks regular. Ninety years have passed since the beginning of the Great Depression, which perfectly fits into long-term economic cycles. So, we may expect the beginning of the Great Depression no. 2. Conclusion The unfavorable development scenario is confirmed by the theory of economic cycles, so we all should get prepared for the worst. The global crisis, which may result from the Great Depression 2020, may last for up to 4 years and reformat our lifestyles the next 5 years. I’d like to hope this scenario won’t be realized, but obviously, this pandemic is an epoch-making event which affects the whole world and will leave its trace for sure. Anyway, time will tell whether this scenario is true, but I’d like to remind you about a famous Chinese proverb: When the winds of change blow, some people build walls and others build windmills. So, let’s cheer up and think about how to benefit from the situation. Take care of yourself and your money! Subscribe and keep in touch! Best regards, Michael @Hypov
CShort
by Hypov
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