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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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  • S & P - Facts Show Market In Transition. Weekly Trend Still Up, But... 0 comments
    Jun 13, 2011 8:40 AM

    Sunday Evening  12 June 2011

     It has been a while since we wrote on the S&P market, primarily
    because it has been difficult to present a clear picture, until recently. 
    The weekly and daily charts tell of a market in transition, daily, and
    the facts of the matter may bleed over into effecting the weekly, but
    that remains to be seen.   We tend to follow
    the sage quote from Lao Tzu"

     "Those who have knowledge do not predict.  Those who predict do
    not have knowledge."

     We always contend that the best source of determining information
    comes from the market itself, and the reasoning is that the last price
    reflects the cumulative thinking of all market participants, the ones
    who count.  Opinions from those not in the market do not matter for
    they are purely rational conjecture.  With that as a preamble, we
    proceed to the market facts.

     Starting with the positive, price remains above the primary trendline. 
    The last swing low, in March 2011, is above the last swing high in
    April of 2010, and this space between the last swing high and swing
    low is known as bullish spacing, a sign of market strength.  Since the
    January  2010 low to the May high, price corrections have been
    relatively shallow, and staying well above a 50% correction, another
    sign of strength.  The current swing low, which has not yet ended, is
    above the last swing low from mid-April.

     Finally, the week just ended was a very small range, and from that
    we can surmise that buyers were meeting the effort of sellers to
    prevent the range from extending lower.  The fact that price closed
    mid-range the bar also indicates a draw between buyers and sellers. 
    What makes this a plus is that sellers are supposedly in control, as
    price has been declining that past six weeks.

     These are observable facts, and the facts lead to the conclusion
    that the weekly trend remains up.  There is one fact that is negative: 
    the momentum of the last high has shortened in net gain, and that
    shows the strength of the really has weakened.  The operative word
    is "weakened," not ended.  It takes time for a turned to change,
    particularly for the larger time frames.  As to any weakness, we go
    to the daily to help determine where the weekly may eventually lead.

     

     

    S&P W 12 Jun 11

     Here, the story is decidedly different.   The shortening of momentum
    mentioned in the weekly can be seen in the daily with greater detail. 
    One important fact that most overlook is the level of volume leading
    up to the high was less than the volume that has attended the reaction
    downward since the beginning of May.  Because of the change in lead
    month from Jun to Sep, that volume does not show here.

     A similar channel has been drawn on the daily.  It is apparent from the
    loss of  momentum in the rally that price failed to make it to the top of
    the channel as it did in February, and that is a sign of weakness.

    The number of days spent correcting from the swing highs is
    indicated under each swing low.  From the May high, there was a
    labored decline, lasting 18 trading days.  It was during this period
    there was little to discuss for the decline did not change the trend,
    but there was no obvious point at which to buy.  Then, in one day
    a fast turnaround occurred, leading to the rally into June.  The
    problem with the rally was the low level of volume.  It said there was
    little demand behind the effort, and just as quickly as the rally
    began, it ended much more dramatically and with a greater increase
    in selling volume.

     The current swing low, seven trading days down, shows greater
    ease of downward movement, [EDM], another sign of weakness. 
    This current sell-off also accomplished two important additional facts. 
    It broke the daily support trendline, and it also went under the swing
    low formed in mid-April.   This is the first time the S&P made two lower
    swing lows without an intervening higher swing high, and it represents
    a change of market character.

     These factual observations from the daily chart show how an inability
    of a market to reach the upper channel can lead to greater weakness,
    and it puts the weekly trend at risk.  However, until that happens, the
    weekly trend remains up, and that is an important fact not to be
    forgotten.  We always use the knowledge at hand as a market guide,
    and there then is no reason to "predict" what may happen.  It could
    well be that there will be an important buying opportunity is
    developing, based upon weekly data.

     It can be said that the trend in the daily time frame has changed
    from up to sideways.  What becomes important now is to watch the
    character of the next rally, from wherever the current low ends.  If
    price is unable to rally to the half-way retracement, around the 1302
    area, it will be a shorting opportunity, and it will be a signal that the
    weekly trend may be changing from up to sideways, as it continues
    to weaken.

     All of the intra day trends are down with no signs of a turnaround,
    so there is NO REASON to be bottom- picking, "predicting" that a
    rally will follow.    Those smaller time frames have to develop and
    prove that a turnaround is under way.  Only at that point can a buy 
    consideration be made, and if it conforms to the weekly chart, it may
    be an important buying opportunity.

     That said, there is not much to do, something considered an
    anathema for traders who are always looking for the next trade. 
    There is a reason why it is said that the best trade can often be no
    trade at all.  This is one of those times, based on the facts presented
    and the knowledge gleaned from them.

     

    S&P D 12 Jun 11

    Themes: S P, SPY, QQQQ, DOW
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