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Michael Noonan Edge Trader Plus Michael Noonan is the driving force behind Edge Trader Plus. He has been in the futures business for 30 years, functioning primarily in an individual capacity. He was the research analyst for the largest investment banker in the South, at one time, and he... More
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  • Euro - Signs Of Caution For Upside 0 comments
    Feb 20, 2013 3:25 AM

    Wednesday 20 February 2013

    Oftentimes, first impressions are the best because the perceived
    information strikes the mind unfiltered by second and third impressions that may begin to second-guess the first. The weekly and daily charts
    of the Mar Euro are first impression expressions.

    Many will look at this weekly chart, well, maybe not so many, but of
    those who do, they will see that the recent high rallied above the
    February 2012 swing high and conclude the Euro is acting well. We
    would disagree, and here is why.

    What caught our eye was the steep decline within the box, noting how fast the rate of acceleration was on the decline. Every succeeding
    weekly high was lower than the one before it for 11 straight weeks.
    Sellers were clearly in control, and when challenged on the next rally,
    they will defend their "territory." The largest of all the bars is the first
    one that began the sell-off. The next bar after it was a failed rally
    against it.

    The challenge to that seller's control area is now, or a few weeks ago.
    Recent price stopped right at where the acceleration and failed rally
    began. You can see how the Euro is in an uptrend since last July. The
    solid, lower support TL captures the trend. We drew a second, parallel
    supply line using the September 2012 swing high and extending it by
    dashed lines to reflect the fact that it is projecting into the future,
    from that point in time.

    When price fails to reach the upper channel line, it is the market's way of telling us that the trend has weakened. It does not mean it is over,
    just a little weak. That leads us to the second observation that caught our eye, as it related the accelerated move down.

    Two weeks ago, you can see a wide range bar down on a sharp
    increase in volume, right after the high, and it closes poorly. This
    should not happen if buyers are in charge, and the market may be
    sending an important message, once again.

    We want to take a closer look at daily activity to determine if the
    character or this not-so-strong rally is in jeopardy. We say not so
    strong because the move up has been somewhat labored, backing
    and filling. Contrast it with the accelerated decline.

    EUH W 20 Feb 13

    Markets do not lie. What they do is generate information that tells us
    what participants are doing in their buy/sell decisions. A similar channel has been drawn on the daily, and price reached an overbought
    condition on the first TD of February. [Trading Day]. Look at what
    happens next day. Not only is there no follow-through, price opens
    under the previous day's close and declines all day. What happened to
    the buyers?

    We mentioned the wide range bar down, [weekly] and we see how it
    began on 7 February, accompanied by the highest volume for the
    contract. It pays to heed high volume days because they are an
    expression of increased activity between buyers and sellers, and who
    wins the battle can be important, even more important when it occurs
    at a certain area, like the current swing high.

    The market continues to provide us with additional information over
    the next 4 TDs, with the 4th one culminating what can only be
    described as a week rally response to the wide range decline on heavy volume. Note where price closed on that day, 5th bar from the end.

    The decline has found some support at the trend line, which should be
    expected, but more because of the small trading range in the middle of January that should act as support, or at least a buffer against a
    decline.

    What may be key for Euro traders is how the market reacts from this
    week's low, so far. The character of the rally will say whether to
    expect higher prices to come, or abandon the buy side. In fact,
    depending upon how any rally may develop, the market could also
    be advertising a short sale. There is some history behind the reasoning that goes back to that area of acceleration a year and a half ago. It
    would be a mistake to overlook it.

    EUH D 20 Feb 13

    Themes: Euro, Dollar, Forex
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