hard · Volume Price Analysis wyckoff-laws
Following a multi-month advance, a stock spends six weeks oscillating in a well-defined range near its highs. Rallies within the range show narrowing spreads on volume that stays elevated, while reactions within the range show widening spreads on volume that is also elevated. The stock then breaks below the range floor on a wide-spread bar with the heaviest volume of the entire six weeks.
At the moment of the breakdown bar, which phase transition is occurring?
- The range itself was distribution, and the breakdown bar marks the transition from distribution into markdown, confirmed by the expansion of both spread and volume to the downside.
- The range itself was accumulation, and the breakdown bar is a spring that will shortly reverse back up into markup, since climactic-looking bars at range floors are typically shakeouts.
- The range was still markup, and the breakdown bar is merely a routine reaction within an intact uptrend, since a single wide bar cannot by itself end a multi-month advance.
- The range was markdown already underway, and the breakdown bar is simply the range's final, unremarkable low before sideways congestion resumes at a new, lower level.
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