Wyckoff Upthrust And The Volume Pattern Signal More Weakness Ahead In S&P 500

On 31 March 2022 S&P 500 E-mini futures experienced a Wyckoff upthrust (UT) of the previous resistance created by the automatic rally (AR) in early February 2022. This was the fist red flag of the beginning of the down swing to test the support.

The Wyckoff upthrust or commonly known as a false breakout is a typical event where the smart funds sell into strength to unload their positions while the majority of the retailers buy into the euphoria because of fear of missing out on the strong rally.

Wyckoff Upthrust Pattern Explained

Since mid of February 2022, S&P 500 showed the inability to follow through to the downside with a shortening of the downward thrust despite the bearish sentiment, suggesting supply absorption in progress, which was confirmed by the short-covering rally in March 2022.

The short-covering rally was over-extended and a Wyckoff upthrust (UT) showed up on 31 March 2022 where the breakout of the resistance formed by the automatic rally (AR) was violated. Increasing in supply was observed in the volume during the upthrust. Subsequently, the downswing was accompanied by high consistency of supply together with a widening of the price spread suggesting supply is dominating. Refer to the chart below.

Failure to commit above the axis line at 4450 where the support-turned-resistance signals continuation of the downswing. Should the support area between 4380-4400 fail to hold, S&P 500 is expected to test the next support area at 4200-4280. So far, S&P 500 is still trading between a big trading range 4100-4600 as defined by the selling climax (SC), secondary test (SC) and automatic rally (AR).

The directional bias is still to the downside because of the sign of weakness broke below 4600 back in January 2022 until proven otherwise. Market volatility is still excessive, which is not part of the characteristics of a Wyckoff accumulation structure. It is useful to adopt the Wyckoff method analyze the characteristics of the price action such as the price spread, velocity, and progress together with the supply and demand as reflected in the volume to form a directional bias as the big trading range is still unfolding.

Stock Market Sector Rotation Trading Tactic

Despite the volatile market condition, there are still many strong up trending stocks in the outperforming sectors that are suitable for swing trading. The choppiness as reflected in the S&P 500 is the result of a sector rotation, which might not reveal the full picture of the market environment.

As shown in my stock screener below, there are 353 bullish setup stocks versus 518 bearish setups stocks. Many of the bullish stocks belong to commodities, such as oil and gas, milling, agricultural chemical, miners of precious metals, etc…

These are the outperforming groups where the smart money focus on. It is essential to trade with the trend and where the money flows to in order to be profitable in this volatile market.

Apart from the commodity sector, there are in total 6 leading sectors to focus on plus 3 lagging sectors to avoid, as illustrated in my video below.

Pick the sectors and groups that are suitable for your risk profile and diversify your portfolio based on the leading sectors will help you beating the market in the long run. Visit TradePrecise.com to get more stock market insights in email for free.