Wyckoff Method & Elliot Wave(E,iotwave can conn"tff::11tffi::H:::"'r,ffir:rx#J{:x1'ffiii-!fnri'*'tion fortrends in

Att we want to demonstrate is that there is a force or law wltich generatestife and form in market behavior, despite the fundamental prejudices andmechanical economic models we all encountered in textbooks. Most imp-ortant, understand that the pathology we describe is socra/ , not individu-at. tndividuals have free will, and can learn the typical patterns of socialbehavior and use that knowledge to their advantage. lt is not easy to actand think contrarily to the crowd and to your own natural tendencieg bufwith discipline and the aid of experience, you can cerTainly train yourselfto do so once you establish that initial crucial insight into the tru essenceof market behavior, which is quite the opposite of what most people bele-ive it to be.

- Elliot Wave Principle (p.130) by A.J. Frost & Robert R. Prechter Jr.

Tom BoPPGGU lD: 0568938

FI 498 JWith Dr. Pruden

0412312016

4o

Vertical Chart Wyckoff analysis

Looking at the stock for Starbucks Coffee company ticker (SBUX) in a short run time period close toone year, we will first look at the vertical (bar chart) identifying the Wyckoff anatomy of a trading range whileincorporating volume analysis into the trends and predictions" We will then cross reference that analysis withthe point and figure (PnF) chart doing counts on approximate stepping stone trading ranges to ultimately arriveat a forecasted price for the stock.

ln late October 2015 SBUX cinched back up into a mini-markup where we begin to see the Wyckoffpoints of the redistribution trading range. We can see from exhibit 1.) a preliminary supply (price stoppingaction) halts the march up. We arrive the high point called a buying climax for practical purposes, these pointshelp define the resistance (the upper parameters of the trading range). SBUX then goes for a march down toan automatic reaction which will test how low the price will go, proceeded by more testing in the markup andmarkdown to more automatic reaciions setting up the definition of the support line. A breech of the bottomlevel of the trading range is known as a sign of weakness. Conversely, a breach of the resistance lineconstitutes a sign of strength

ln December a trend channel established itself transpiring a clear downward trend. The three rounddots serve as indicators for this change" The upper two constitute the supply line. The lower one helps definethe (oversold) supply line. Price stopping action is apparent in the new stepping stone trading range halting thedownward campaign. Followed by a selling climax, a markup in the trading range is seen at the automaticreaction, followed by a markdown (testing point) known as secondary test. Again we see the preliminarysupport, selling climax, and automatic reaction yield the suppofi and resistance lines of the trading range,

Note that the timeframe of the trend channel from December to mid-January has a lot of volatility asseen from the volume bars very long accompanied by many short bars. Observing the bars in the downwardtrend channel anything touching or going below the bottom line of the channel is oversold, and is an indicator ofexhaustion. A decline in the downward trend is halted by price stopping action marked as preliminary supplyaround $54, coupled with the selling climax at approximately $56 and a secondary test at approximately $54 fora PnF hit. The vertical chart paints a picture that coordinates well with the analysis of the PnF. A ping pongupwards to an automatic reaction follows, with resumption downward for a selling climax. Note, now how thebrief rally upward breaks through the supply line preceded by a bulge in volume, making an automatic reaction(large sellers are present) and we have identified a trading range. The decline to the secondary test isaccompanied by another large surge in volume. This is an indication of large supply available, which in turnmust be absorbed for the accumulation process. This process generally takes time to yield a sufficient causeto be built up for big counts. The large volume bar pattern the follows from December and on into late Januaryis classic liquidation taking place, and should be taken into account as a sign of caution. Further, as additionalmarkups hitting or breeching the resistance line also accompanied by surges in volume (bullish activity).

Point and Figure Wyckoff analysis

The stepping stone redistribution count of $54 to $56 accurately illustrates our stepping stone into thatnew trading range, Note the cause already being built sf $7 with a count on the PnF from left to right we count,X's for tops, and in this case, rrO'srr for lows af 7 (7 columns multiplied by $1 scale). Another caveat is themodest evidence of high volume on the declines and is something to be aware of. The composite operatordefined as strong hands in the market will have to exhaust supply before a meaningful rally ensues. There isalways possibility for another stepping stone redistribution if we don't get these key traits in our story,

(SBUX) generated a count all the way down to the $54 to $56 level predicting an accurate generationon the redistribution into a lower trading range. This process from the redistribution to a stepping stone into alower trading range culminated enough of a cause built up to bring from the count line at $55 and the low at$53 to proceed in a markup accurately into the next trading range in the vicinity of $60 to $62 trading rangerespectively, From there we can expect another markup for this strong market leader at the count line of $60marching up into a new trading range in the vicinity of $66 to $69 respectively.

'*t/to

Nine Buying Tests from Dr. Hank O. Pruden

Wyckoff Buying Tests Nine Classic Tests for Accumulation

t.) Downside price objective accomplished:

Yes. The distribution top formed durring November 2015 creates a point and figure chart count that gives the

downside price projections that were met in the vicinity of the February 2016 lows.

2.) Preliminary support, selling climax, secondary test

Yes. This sequence of price and volume actions signals that the downtrend from November 2A15 had

stopped. Note the high volume, "smart money" buying in late January and early February 2016. the sharpprice rise on expanded volume in mid-January 20'16 indicates heavy demand overcoming weakeningsupply. This bullish action is confirmed by the subsequent series of secondary tests on into March2016. Despite prices falling below the previous selling climax low, volume shrunk up. Then at the end of the

trading range in March and April , prices bullishly rallied off of large spikes in volume.

3.) Activity bultish (volume increases on rallies and decreases on reactions)

Yes. We see expansions on large volunie spikes from February to March 2016 in comparison to the lowervolume bars on the price distribution and decline in late October, November and December ?016.

4.) Downward stride broken (i.e., supply line penetrated)

Yes. Downward sloping supply line was penetrated in late January 2016. Note how in late February the old

supply line is now the new support. A classic principle within a principle, in other words, old resistancebecomes new support as prices dipped in March 2016

5.) Higher supports (daily low)

Yes. A series of ascending lows is evident in late February and March 2016

6.) Higher tops (daily high prices rising)

Yes. A series of advancing tops is evident in late February and March 2016.

7.) Stock stronger than the market (i.e., stock more responsive on rallies and more resistant toreactions than the market index)

Yes. Relative to the Nasdaq Composite 100, ticker ticker, ($COMPA) of which serves as the benchmark thatthe underlying stock $tarbucks (SBUX) is listed on in exhibit 3" Note that $BUX stays in tight trading rangeshigher up in exhibit 1. bar chart. Compared to the bar chart of the nasdaq which has a dramatic plunge

downward wiih lots of price swings and much longer bars and never really gets back up above the old supportline in the topping of the distribution trading range of November and December 2015

8.) Base forming (horizontal price line)

Yes. A noticeable reverse head and shoulders forms off of the support line in the stepping stone ( the secondtrading range).

9.) Estimated upside profit potential is at least three times the loss if protective stop is hit.

Yes. An ideal purchase for Wyckoff analysts would be on the pullback to the neckline at the second shoulder in

early March 2016 after the high volume advance in early February: then the price stop at the support at $57

and the price objective/risk ratio is greater than 3/1. (Price objective is $66 to $69.)

3//io

Elliot Wave Count Analysis with Fibonacci Retracement lines

Taking a first look when applying the Fibonacci Retracement lines over SBUX, it was interesting to see that the0.618 line marked at a price level for SBUX at $61.58 ran almost perfectly through the middle of the firstWyckoff trading range where distribution took place.

Further, interestingly enough the Fibonacci retracement line of 1.618 marked at the price for SBUX at the priceof $58.57 ran approximately through the middle of the second stepping stone trading range.

It is also interesting to note that in the second Wyckoff stepping stone trading range the Fibonacci retracementline of 1.618 approximately intersects the upper resistance line of the trend channel from the first trading rangeto the second trading range (supply line). This is the point where SBUX breaks out of the downward trend andbegins a markup campaign. (see Exhibit 1.)

My methodology for doing Elliott Wave counts had lent itself largely to the following quote. "The foremost aimof wave classification under the Elliott system is to determine where we are in the stock market cycle. Thisexercise is easy'as long as the wave counts are clear, as in fast-moving, emotional markets, pafticularly inimpulse waves, when minor movements generally unfold in an uncomplicated manner," (p,68) Prechter &Frost

My initial conveyance of SBUX at first look was to just look for the high points, and then Elliott wave says thatthey must be a wave three, or a wave 5. Further, I then looked at the wave five for SBUX and my perceptionwas that it was an irregular top, Note, the A,B and C comprise of the irregular top and E makes this picture looklike a triangle where revisit famous Fibonacci ratios 1.618 and 0,618. ln this case we have arrived on the 0.618line approximately. So far Elliot has now connected the two Wyckoff trading ranges.

Beginning now in the stepping stone Wyckoff trading range one may observe an Elliott Wave count of 1,2, 3,

with a sideways pattern where flats and zigzag can be seen. This pattern coincides with the Wyckoff tradingrange we marked up in Exhibit 1.) Prechter and Frost contend that , ""..choppy markets, particularly incorrections, wave structures are more likely to be complex and slow to develop." (p.68) Prechter & Frost

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Wyckoff Buying Tests Nine Classic Tests for Accumulation

1.) Dowside price objective accomplished2.) Preliminary support, selling climax, secondary test3.) Activity bullish (volume increases on rallies and decreases on reactions)4.) Downward stride broken (i.e., supply line penetrated)

5.) Higher supports (daily low)6.) Higher tops (daily high prices rising)7.) Stock stronger than the market (i.e., stock more responsive on rallies and more resistant to reactions than

the market index)8.) Base forming (horizontal price line)g.) Estimated upside profit potential is at least three times the loss if protective stop is hit.

New Wyckoff Buying Tests Modified for Reaccumulation

Resistance line broken (horizontal horizontal line across the top of the trading range)

Activity bullish (e.9., volume expanding on rallies, shrinking on declines)Higher lows (price)Higher highs (price)Favorable relative strength (equal to or stronger than the market)Correction completed in price and/or time (e.9., one-half retracement, support line reached)Consolidation pattern formed e.9., triangular formation)Stepping stone confirmation count3. 1 reward-to-risk ratioPruden. pg 143-144

Wyckoff Labeling Poi nts

PS-preliminary support, where substantial buying begins to provide pronounced suppott after a prolonged

down-move. Volume and spread widen and provide a signal 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 orpanicky selling by the public is being absorbed by larger professional interests at prices near a bottom.

AR-automatic rally, where selling pressure has been pretty much exhausted. A wave of buying can now easilypush up prices, which is furlher fueled by short covering. The high of this rally will help define the top of thetrading range.

ST-secondary test, revisiting the area of the selling climax to test the supply/demand balance at these price

levels" lf a bottom is to be Confirmed, significant supply should not resurface, and volume and price spread

should be significantly diminished as the market approaches support in the area of the SC.

The "creek,"...is a wavy line of resistance drawn loosely across rally peaks within the trading range. There are,

of course, minor lines of resistance and more significant ones that will have to be crossed before the market'sjourney can continue onward and upward.

"Jump"-continuing the creek analogy, the point at which price jumps through the resistance line; a good sign if

done on increasing spread and volume.

SOS-sign of stregnth, an advance on increasing spread and volume.

LPS-last point of support, the ending point of a reaction or pullback at which support was met. Backing up to

an LPS means a pullback to support that was formerly resistance, on diminished spread and volume after an

SOS. This is a good place to initiate long positions or to add to profitable ones.

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Work Cited

Frost, A.J., and Robert Rougelot. Prechter. Elliott Wave Principle: Key to Stock Market Profits.

Gainesville, GA: New Classics Library, L990. Print.

Pruden, Hank. The Three Skills of Top Troding: Behaviorol Systems Building, Pattern Recognition, ond

Mental Stqte Manogement. Hoboken, NJ: John Wiley & Sons, 2007. Print.

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