Fellow Subscribers,

In this blog post I will be using real GDP data combined with technical analysis (mainly price and volume) to help forecast my prediction for the S&P500.  Specifically, I will be using Wyckoff Analysis to help determine the course of future events now the index is in a clearly defined trading range.

It would be useful if you had at least a basic understanding of how the Wyckoff method works for determining price cycles and trading ranges.  I have several YouTube videos helping to explain this https://www.youtube.com/user/jcorsellis1.  However, the basic premise for the Wyckoff method is that prices, both stocks and indexes, move in 4 cycles then repeat:

  • Phase 1: Accumulation
  • Phase 2: Markup
  • Phase 3: Distribution
  • Phase 4: Markdown

I will start by analysing two charts - 1) S&P500 Weekly Chart (SPY ETF) from 2016 to present day; and 2) S&P500 Monthly Chart (SPY ETF) from 2009 to present day.  Following this I'll use the US real GDP YoY and look at US real GDP forecast.  I have used this chart from Hedgeye Risk Management, so it is not my own; I would recommend subscribing to their services.

First chart S&P500 (SPY ETF) Weekly Chart from 2016 - 7 March 2019:

What does this chart show us?

  • From the low point in 2016 (7 February) to the high point in 2019 (16 September) the S&P500 advanced circa 60%.  This is an average monthly gain of 1.4%, significantly above historical averages of circa 0.75% per month.
  • Using Wyckoff analysis we can identify a Wyckoff trend channel and establish overbought and oversold areas.  Such as the overbought area in Janaury 2018 which was followed by a sharp market decline.
  • Using wyckoff we can also identify the end of a trending environment and when a trading range has been established.  Further, we can then apply Wyckoff principles and economic data to determine whether the trading range is likely to be a distribution phase (followed by a markdown) or an accumulation phase (followed by a markup).  The Index is currently in a trading range, which will be discussed in more detail later.
  • Following the end of the trending environment the Index has now moved into a trading range.  Using Wyckoff analysis we can label key areas such as; BCLX (buying climax), AR (automatic reaction), ST (secondary test) and UT (upthrust) - so far.  
  • The Index is now at a key resistance point at…

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