A deep dive into Wyckoff Accumulation Schematic #1.Greetings, I find my previous communication regarding the US dollar was perhaps insufficient in elaborating my viewpoint. Therefore, I have resolved to delve deeper in this correspondence, presenting a thorough analysis to substantiate my conviction that the US dollar is poised for a considerable mark-up phase, from a technical standpoint.
I must clarify that I am not an advocate of fundamental analysis; my interests lie predominantly within the realm of technical patterns. I envisage this upward movement initiating around August 10th, which coincidentally corresponds with a significant Consumer Price Index reading.
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Foremost, let me clarify that my analysis is grounded in the original Wyckoff Accumulation Schematic #1, composed of approximately five distinct phases. It is my endeavor to convey an understandable summary of these phases to you, my esteemed reader.
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Phase A:
In the Wyckoff Method represents the end of a downward trend in a stock's price. It starts with a significant sell-off (Selling Climax), followed by a brief price recovery (Automatic Rally), and then a less intense sell-off (Secondary Test). These events establish a trading range for the stock price. If the Secondary Test drops below the Selling Climax, further price drops or extended low prices can be expected.
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Phase B:
In Wyckoff's Method is a period of "building a cause," essentially preparing for a new upward trend. Institutions and professional investors start buying more shares at relatively low prices, anticipating a future price rise (the effect). They balance this buying with some short sales to keep the price from rising too fast. During this phase, the price often fluctuates within the trading range established in Phase A, with many Secondary Tests and false price breaks called "upthrusts." This phase can take a long time as big players slowly accumulate shares. As more shares are bought up, the volume of shares traded during price downswings tends to decrease, signaling the end of Phase B and the start of Phase C.
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Phase C:
In Wyckoff's Method is where the stock price is tested to see if it's ready for an upward trend. This phase often includes a "spring", a sudden drop below the established trading range that quickly reverses. This can trick late sellers into thinking the downtrend is resuming when it's actually the start of an uptrend. A successful spring represents a good opportunity to buy as it signals the stock is likely to start going up. If a "Sign of Strength" (SOS), a noticeable upward price movement, appears after the spring, it confirms this analysis. Sometimes, supply testing can happen without a spring, making Phase C harder to identify.
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Phase D:
In Wyckoff's Method is when demand starts consistently exceeding supply, leading to a dominant upward trend. This phase is marked by "Signs of Strength" (SOSs), or notable upward price movements on high volume, and "Last Points of Support" (LPSs), smaller upward price movements on lower volume. The price will typically reach the top of the trading range during this phase. The LPSs are generally good opportunities to start or add to long positions as they suggest the price is likely to continue rising.
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Phase E:
In Wyckoff's Method is when the stock price leaves the trading range and begins a clear upward trend, with demand in full control. Any price drops during this phase are usually brief. New higher-level trading ranges can form during this phase as investors take profits and large operators buy more shares, serving as "stepping stones" towards higher prices. This phase makes the price rise visible to all market participants.
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Glossary of the Wyckoff terms used in the post:
PS (Preliminary Support):
A point where significant buying starts to happen after a prolonged price decrease. The increased volume and price spread suggest the downtrend might be ending.
SC (Selling Climax):
The peak of selling activity, often involving panic selling by the public. Large investors absorb this selling, which can stabilize or increase the price. The price often closes well above the low point, reflecting these large investors' buying activity.
AR (Automatic Rally):
A price increase that happens because selling pressure has significantly decreased. This rally, further driven by short covering, helps set the upper boundary of the accumulation trading range.
ST (Secondary Test):
The price revisits the area of the selling climax to test if demand outweighs supply. To confirm a bottom, the volume and price spread should decrease significantly as the price approaches the support level. It's common to have multiple secondary tests after a selling climax.
Test:
Large operators or professional investors test the market for supply throughout the trading range and at key points during a price advance. If a test reveals considerable supply, the market might not be ready for a markup. A spring is often followed by tests, and a successful test (indicating impending price increases) typically forms a higher low on lower volume.
SOS (Sign of Strength):
This is a price advance on an increasing spread and relatively higher volume. An SOS often follows a spring, which validates the analyst’s interpretation of that action.
LPS (Last Point of Support):
This is the low point of a reaction or pullback after an SOS. Reverting to an LPS implies a pullback to a support level, which was formerly resistance, on a decreased spread and volume. Despite the singular term, there may be multiple LPSs on some charts.
BU (Back-Up):
Coined by Robert Evans, a prominent Wyckoff method teacher, it's a metaphor for a pullback after an SOS, akin to "jumping across the creek" of price resistance and then "backing up to the creek." A back-up often precedes a significant price markup and can appear as a simple pullback or a new trading range at a higher level.
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I appreciate your time in perusing this analysis. In conclusion, I foresee the US dollar potentially reaching an upside target of approximately 110-111 into the end of this year.
Lastly, I invite you to revisit my prior substantial post on the US dollar, wherein I had the occasion to pinpoint "the top".
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