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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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  • DAX - Different Country, Different Culture. People Are People, Charts Are Charts. 0 comments
    Apr 10, 2013 2:32 AM

    Wednesday 10 April 2013

    The one common denominator that crosses all cultures, even religions,
    is money. It is the global equalizer. We take a look at the DAX,
    Germany's stock market. Do the "precise" Germans fare any better at
    investing than at, say, building cars?. Likely not. Money goes to the
    core of the human psyche as the fundamental driver for tapping into
    the fear/greed element from which few escape, at least when it comes to investing.

    Unfortunately, DAX does not have volume, a vital element that shows
    the ebb and flow of two incredibly important principles, supply and
    demand. Why it volume so important? It shows the effect from the
    cause factor of investors/traders making buy/sell decisions.

    You may see two daily bars of equal price range and close, and theyappear to be equal. When the volume factor is added, one bar with
    volume of 15,000 shares and the second bar with 120,000 shares, they are far from equal. The lesser volume shows a lack of demand, the
    other a force of demand that convey very important information for

    With that handicap, let us proceed to what the DAX may be saying at this random point in time.

    For German readers unfamiliar with how we analyze markets, it is based on current developing market activity and compared to historic
    activity, using the factors of price, shown by size of range and
    location of the close, informing us who won the battle between
    buyers and sellers. The other critical factor, volume, is missing. As a
    consequence, some of the analysis will lack more pertinent detail.

    Not many look at Quarterly charts. It is our starting point as a
    reference and context when compared to the progressively smaller
    time frames. What we want to see is a synergy from one time frame
    to the next. It does not always exist, but when it does, it makes an
    analysis more compelling. From whatever time frame once views a
    market, it is important to be aware of support or resistance on the
    next higher time frame. The higher the time frame, the more controlling is the chart. What jumps out immediately is the persistent resistance
    that started with the 2000 high, stopping the rally in 2008, and now
    price is retesting that same level. The first Qtr, 2013, second bar from
    the end, was the smallest range since the 2011 swing low. The narrow
    range tells us demand was weak, otherwise, the range would have
    extended higher. The location of the close, mid-range the bar,
    confirms the weak demand because sellers were present, as would be

    The First Qtr 2013 looks weak, and sets the stage for how the other
    charts may appear.

    DAX Q 10 Apr 13

    Note the TR, [Trading Range], just prior to arrow 1. The inability to
    rally above the high established in 2000 said demand was weak, and
    once again, you see how small the ranges were for the bars
    attempting to rally. Weak demand opens the door for supply to enter,
    as sellers note the inability of buyers to extend the rally. An analysis of volume, during the TR may have made the "red flag" potential clearer.

    The size of the decline, at 1, shows how sellers took control with EDM, [Ease of Downward Movement], erasing the previous 12 month's effort in just a single month.

    The arrow at 2, shows small ranges, a lack of demand, and closes in
    the middle, telling us sellers are meeting the effort of buyers each
    month. As it did in 2007, this can open the door for sellers to rout
    buyers and carry the market lower.

    Compare the length of time for the EDM, in 2008 and early 2009, with
    the length of time for price to recover back the retest to the 2007
    high. This is an example how a protracted effort tells us that the
    market is relatively weak.

    What can be said is that the current trend, for the past few years, is
    up. The question is, can it sustain itself in view of what the message
    of the market has been since 2000? All we are doing is making factual
    observations, letting the market tells us what to expect, moving

    DAX M 10 Apr 13

    At no time is there any discussion or consideration to fundamental
    factors, country or world situations. All of that information shows up in the charts, and it becomes a matter of "reading" the message from the market itself, the most reliable source of all.

    When you look at the net gains from each swing high to the next
    swing high, it is apparent that the upward momentum is laboring.
    Almost all of swing high "C" has been a struggle, a lot of sideways
    movement. It is at a support level, as defined by the weekly time
    frame, and you can better understand why it is so important to be
    aware of the next higher time frame.

    The weekly is above a former resistance line, now acting as support,
    whereas the monthly shows all the current activity under important

    The first week of March was a wide range bar up with what appears to be a strong close. The second week, fifth bar from the end, was very
    small. What happened to the buyer's effort? It disappeared. What
    looked like strong demand may have been an exhaustion rally, instead.
    We cannot say for sure, without the volume story to confirm, but the
    2nd week in March is a red flag warning.

    The second and third bars from the end show greater EDM, wider
    ranges and poor closes. This tells us sellers took control from buyers.
    Can they keep it? In an up trend, the onus for change is on sellers;
    demand has already been proven by virtue of the trend.

    Concern is for the inability of buyers to lift price higher, away from
    support. It is critical to observe the how of a market's response. Right
    now, price is not responding well to the existing support. After a one-
    time spurt higher, as just described, price has returned to the level
    from which it had moved sideways from mid-December until the March

    Too many tests of support is the market's way of telling us demand
    cannot move higher, and support will likely give way. There is no
    guesswork here, just a factual reading of the developing market
    activity and applying the logic it conveys.

    DAX W 10 Apr 13

    The box captures the sideways trading from mid-December to March.
    It formed a base from which a rally can be sustained. How did the rally unfold? In small ranges with not very strong closes, a sign of little
    demand effort/ability. Compare the bar ranges in the rally to "A" with
    those in the decline to "B."

    Based on a series of factual observations, from the Quarterly chart to the current daily, the DAX is at a critical juncture. As an index, it is
    telling us to look very closely at individual stocks to make a decision
    to remain long, or not, or at least use close stops, [stops being
    something stock "investors" for some reason fail to use.].

    Volume would have made this analysis more compelling in conclusions,
    but one thing is certain: caveat emptor!

    DAX D 10 Apr 13

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