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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 N P - Market Looks To Head Lower 0 comments
    Jun 29, 2013 10:32 PM

    Saturday 29 June 2013

    What is the message of the market as the week, month, 2nd Qtr, andfirst half of the year just ended? The second half of the year is likely
    to prove more troubling for the Bulls. We do not make predictions for
    a future that has not yet happened, but an assessment on what may
    unfold for the remainder of the year is about to begin on a weaker
    tone, based on the developing market activity.

    All of the available news, information, data, fundamentals, technicals,
    from any and all sources eventually gets translated into the market
    as the driving force[s] that create the trends and trading ranges.
    Everything gets distilled into a bar chart, showing a high, a low, and
    where the final closing price occurred. An important add-on to that
    critical information is volume, the energy, or lack of energy behind
    each and every market move, in all time frames.

    Yes, yes, it seems so basic to state, but the information to be gleaned from reading bars and volume escapes the majority of participants.
    Ironically, the ultimate message of the market, the most reliable source of information receives the least amount of credibility.
    Fundamentalists treat charts as an amusement. Technical analysts try to harness the market's energy of information into some formula,
    imposing past tense indicators onto present tense activity, and
    expecting accurate future direction.

    This is not a review lecture of various forms of market analysis; rather,
    it is context for understanding that the markets have an incredible
    amount of logic in the messages that everyone gets to see, for those
    who so choose, that eliminates all the noise and perhaps the weakest
    link common to us all, emotion.

    The high, low, close, and volume generated by the market is totally
    void of emotion
    . The market just is. Any emotion comes from the
    viewer/reader of that information. If one were to follow the market's
    lead, instead of trying to predict what it may or should do, the
    results for success can improve dramatically.

    To chart context we go.

    The long-term trend remains up. Factually, there has not been a
    market turn in price on the monthly chart, as yet, from an objective
    look at where price is, still near the highs. What we want to do is read
    the logic of price and volume activity. Last month, price made a new
    all-time high and closed in the middle of the range. If you look at each bar, since the 2008 low, about 90% of them had a close near the high
    of the bar's range.

    A close at the high-end of a bar indicates who is winning the "battle of the bar," between buyers and sellers. Buyers have been in control of
    this market since 2008. Why is the close for May mid-range the bar?
    The market is telling us sellers were meeting the effort of the buyers,
    a draw between the two forces. What is interesting to note is that
    the draw occurred at the highest level of the rally.

    Aren't buyers supposed to be in control at market highs? It has been
    that way for the past five years! The question it begs is, why is the
    market showing a change in behavior at this critical juncture? We do
    not need to know the fundamentals. We do not need to know the
    market is above a series of moving averages, [past tense, and lagging
    information]. We do not need to view RSI, MACD, Bollinger Bands, you name it. None of them addresses what is developing right now!

    June just ended, and we see a similar bar that also closes mid-range.
    Do both bars mean the same thing? No. Why not? Look at the
    volume for June v May. The composition of the internal makeup
    between the two has to be different, based on that observable fact.
    Monthly bars are for context, not for timing. To get a better read of
    the June activity, we need to see the nest lower time frame, a weekly
    chart.

    ESU M 29 Jun 13

    A line has been drawn to connect the swing highs and lows to get a
    view of the overall trend without the "noise" in between. We can now see the composition of the monthly June bar, and it shows the largest
    weekly bar was to the downside with a low-end close. That factual
    observation has a negative connotation. When you add to it the
    volume, the highest weekly volume in over a year, the market is telling us that the increased energy was to the downside. These are
    indisputable, objective facts.

    The last bar, last bar of the month, was a rally. An objective
    comparison shows it is smaller in range than the previous down bar,
    [less ability to rally], and while the close is at the upper end of the
    bar, [buyers "win" the day], it did not close much higher than the
    weaker bar, and compare the close of the second bar to the close of
    its preceding close. There was a greater distance down than there
    was up, in the last bar.

    Finally, note the sharp drop in volume on the last weekly bar. Demand
    lessened on the rally effort. What happened to the buyers? This is a
    red flag, a warning. The trend of the monthly and weekly charts
    remain up, but the internal character has weakened.

    The clustering of closes from March and April acted as a support when
    last week's low retested the 1550 area. There is still bullish spacing,
    where the current swing low remains above the last swing high. What
    we need to watch more closely, moving forward, is how future rallies
    develop. Will volume increase, or not? Will the closes be strong or
    weak?

    We turn to the daily to see how its details reflect the content of the
    weekly.

    ESU W 29 Jun 13

    Connecting the swing highs and lows, the daily time frame shows lower highs and lower lows, the essence of a downtrend. The smaller time
    frames show faster developing market activity than the higher time
    frames, and changes in the lower time frames occur before there is a
    change in the higher time frames.

    The downtrend on the daily justifies the red flag warnings on the
    monthly and weekly charts. It is a read of the three different time
    frames that tells us the market looks to head lower. The strength of the higher time frames takes more effort to turn them, so we can
    expect more rally efforts, rather than an immediate decline underway.

    What we can look for, based on developing market activity, is stronger declines and weaker rallies. Plan accordingly.

    As an aside, last Thursday, we issued a potential short trade alert in
    the S&P to our blog subscribers, IF what we saw developing confirmed expectations, http://bit.ly/19KEwew. We did it as an exercise to
    demonstrate one does not need to predict the markets, but to be
    prepared for what follows developing market activity up to the point of making a decision to buy or sell in the market[s].

    If a signal occurred, and the trade work, it was known in advance for
    specific reasons and not in hindsight. We were looking for a weak rally that failed. Our preparation worked, in that aspect, because it kept us out of a trade potential that then became questionable.

    What developed was market weakness right from the start and not a
    rally. Price then vacillated the rest of the day, but there was no reason to sell, based on developing market activity. The emotional
    element
    that plagues us all was removed, based on preparation and
    the lack of a reason to execute.

    Price did sell off at the end, unexpectedly, but that is a somewhat
    different story. Turns out, we had a similar set-up in 30 Year Bonds,
    a trade we did recommend making, and for the reasons similar to
    those in the S&P alert.

    Those who remain long in the stock market are getting red flag
    messages. They should be heeded.

    ESU D 29 Jun 13

    Themes: S n P, Nas, Dow, Stocks
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