Seeking Alpha

edgetraderplus'  Instablog

edgetraderplus
Send Message
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
My company:
edgetraderplus
My blog:
edgetraderplus
  • FTSE 100 Sending Red Flag Signals 0 comments
    Apr 14, 2013 1:43 AM

    Sunday 14 April 2013

    One of the best aspects of reading developing market activity is that it reduces any market to the opposing forces of supply and demand. It can be any organized market, anywhere. The factors of fear and greed universally apply to all investors/traders.

    Reading developing market activity, in context with past price
    behavior, is a short-hand way to follow what smart money is doing. Smart money represents the controlling influences behind price
    movement. We recently did an analysis on the German DAX, [Different Country, Different Culture. People Are People, Charts Are Charts,
    http://bit.ly/ZDvxeg]. What held true for that analysis equally holds
    true for the FTSE 100.

    The starting point for any analysis is defining the trend and doing it on a higher time frame to put a market into a context for decision-making. The market sends out a lot of information, captured in the bar ranges and location of the closes on a bar. The size of the range indicates the level of strength/weakness of price movement. The close tells us who
    won the battle for that session, whether it is monthly, weekly, daily, or intra day time frames.

    Smart money does not like to let it be known what its intent is when in the market, but their hand can be detected by reading the developing
    market activity and the volume behind the effort. Neither the FTSE nor the DAX provide volume, so an important element is eliminated. As with any market, you learn to deal with what is.

    The 2007 high is obvious and important. After a labored rally since the
    2009 lows, much of which was spent in a sideways movement for three years, there was a strong rally breakout in January, fourth bar from
    the right. The last three bars are the focus of attention. We need to
    determine if the market is absorbing seller efforts, or if the effort of
    sellers is overcoming that of buyers. A look at the more detailed
    weekly may provide that answer.

    The trend has been up since 2009, already identified as relatively
    labored, so we know that buyers have proven themselves, and the
    onus for a change in trend is on the sellers. The character of the
    weekly chart should also help in determining the quality of the trend.

    FTSE M 14 Apr 13
    Right away, it becomes apparent that the quality of the trend is not
    strong. Price has moved sideways since the late January breakout. The message from the market also alerts us to a lack of demand bar at 1.
    The very small size of the bar tells us there was a decided lack of
    demand, demonstrated by the inability to extend the range higher.
    Occurring at the high of the rally, and under monthly resistance, the
    market is signaling a red flag warning.

    Prior to bar 2, six of the previous 8 ranges had weak closes, yet more
    factual information provided by the market that speaks to the
    character, or quality of the trend. Contrast those bars with the one
    labeled 2. It shows Ease of Downward Movement, [EDM], and a
    low-end close. That one bar also erases the buying effort of the
    February and March, a second red flag warning.

    Where are the buyers? An apparent lack of demand is noted by and
    invites sellers to step in and take over.

    FTSE W 14 Apr 13

    The possible negative tone set by the monthly was reinforced on the
    weekly. We can expect to see clearer detail of the same on the daily,
    and it does not disappoint. The lack-of-demand March high leads to a
    correction, but it stops within the supporting trading range activity
    from February. When price fails to rally to new highs, a lower swing
    high is created. What follows that high is another warning message.

    We see EDM, three wide ranges lower with weak closes, erasing the
    past two months' entire buying activity. The ability of price to slice
    through so quickly is the market telling us that the buying effort during February and March was of a poor quality. A new swing low follows the lower swing high, and by definition, the daily trend has turned down,
    at least for now.

    The next rally stops at 2, not quite confirmed, but Friday's lower high,
    lower low, and lower close will likely lead to more selling on Monday.

    The monthly and weekly time frames remain up, not strongly, but still
    up. The lack of strength is attracting sellers to step in and take
    control. Temporarily, that control has been wrested away on the daily
    chart. There is still some support in the 6150 area, and how price
    responds to it, should it be tested, will provide more important
    information.

    For now, the demonstrated weakness is a sign of caution. One needs
    to take an inventory of holdings to see if there are stocks even
    weaker, and they should be either sold or have close stops to keep
    risk exposure contained. The same would hold true for one's entire
    portfolio. Profit-taking may ease potential erosion should the apparent
    price weakness show no ability to attract more demand.

    An analysis like this makes decision-making more pragmatic, using the
    available factual information generated by the market, always the final
    arbiter. The emotional element is removed and reduced to dollars and
    cents, or pounds and sense. It appears that is what the smart money
    is doing.

    FTSE D 14 Apr 13

    Themes: FTSE, Stocks
Back To edgetraderplus' Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers

StockTalks

More »

Latest Comments


Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.