Courtesy of Read the Ticker.
Richard Wyckoff used Point and Figure charts to target price zones where the energy or ‘effect’ from a ’cause’ or consolidation would run out. Time to see what it says about the current SP500 price advance.
Reference: The Wyckoff Method Applied in 2009: A Case Study of the US Stock Market
Within the pdf linked above, page down to page 34 or page 6, figure 8. There you see the forecast price zone of the SP500 from the top in 2007 to a bottom in 2009. The forecast is of price only, and not time. It was very accurate.
Richard Wyckoff would only use this technique on PnF charts that were Wyckoff friendly, or more simply charts that showed the PnF price zone target worked with some success. After all, not all PnF charts are the same. The chart below shows the PnF forecast (A) and (B) worked out well [NOTE: (A) is the same one in the pdf linked].
The Wyckoff forecasting idea is that you count the columns that are included within the CAUSE ([re]accumulation or [re]distribution) and the extend the price zone vertically based on a x3 multiple. The column count would start at the first (PD) point of demand and the last point of supply (LPS) during a bullish accumulation consolidation.
The calculation at (C) suggest a price zone target of 2034 for the SP500. This is based on a ’cause’ column count of 16. However some may think the column count should be 18, if so the target price zone would be 2190. Let’s settle for a price range between 2000 and 2090 (90pts). More frankly, the SP500 is near the target now give or take 5%.
This Wyckoff PnF price zone tagret is not top picking, it is however a target where that the EFFECT from the CAUSE is about to run out, and it is where market watches can expect the market to consolidate. The folks on would say ‘expect volatility’! Remember a consolidation may mean reversal or continuation.
This method is tried and true, it has been around for a very long time, and on charts that show a good acceptance of its use, it will continue to work, and the SP500 us one of these.
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Investing Quote…
..”Being in the market at all times is not the key to profits. Being in the market when there is a clear, unconfused technical signal, and the trader’s judgment is not swayed by emotion, is the method for trading success”..
Richard D Wyckoff
..”Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway”..
Warren Buffett
