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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 - Temporary Relief What Follows Will Be Key 0 comments
    Aug 10, 2011 12:28 AM

    Tuesday Evening  9 August 2011

      After the political calamity and the gang from the Federal Reserve
    that could not shoot straight, the market reality in response to what
    central planners, AKA Central Bankers, reached a likely culmination
    on Tuesday.  The three highest volume days of the year occurred
    consecutively over the precipitous drop of the last three days.  It
    will take several weeks to get a better handle for future market
    development, and it can and will likely get worse, for the near term
    the market should settle down to some degree. 

     Most of what we saw the past few days has been short-covering, as
    opposed to new buying, so one should not have high expectations
    of a sustained rally.  It will take some time for the market to build a
    recovery base, if one is to be built, at all.

      There are two things to watch for in the several days/weeks ahead. 
    The first is the extent of the immediate recovery rally and its character, in terms of strength or weakness.  The second, and perhaps more
    telling, will be how Tuesday's low gets retested.  We drew a few
    horizontal lines from previous supports that will now become resistance.  That is the target for where any rally can go.  Should any rally fall short of this area, that will be a sign of weakness.

     While this low is likely to hold, at least for a while, the best one can
    expect would be a developing trading range.  From wherever a
    recovery rally peaks, the most telling market information will be the
    character of the retest lower.  For any hopes of price recovery in
    the months ahead, the days down should show a general narrowing
    of the trading range.  This will let us know that sellers have pretty
    much spent what they had.  If we see volume decline, as well, that
    will be one of the most important keys in determining the character
    of any potential recovery.  A drying up of volume on down days will
    send a clear message that selling pressure is no longer there, and
    that will set the stage for a more sustained rally.

     If the market does not evidence this kind of activity, the low may not
    hold, but again, we need to see more information develop over the
    next few weeks to make a better assessment.  One thing any market
    participant should be aware of is to not buy into the first rally.  Wait
    for a retest.

    The intra day chart will show how volume on Tuesday turned positive
    by day's end.

     S&P D 9 Aug 11

     One more point to make about the highest volume of the past several
    trading days is that such increased activity is most always a transfer
    of risk, in this case, going from weak sellers, near the end of the
    decline, into the hands of strong buyers.

      You can see the final two high volume bars was 1. stopping volume,
    evidenced by the mid-range close, a sign of buyers entering at the
    lows, which is how that bar's close was able to rally off the low, and
    2. equally high volume on a wide-range rally bar with a strong close. 
    That was the strongest showing of any intra day bar since the July
    high, and it backs up the above discussion.

     The reason why you do not want to buy the first rally is because it is
    mostly short-covering, here, and that form of buying cannot sustain a
    rally.  The point about a transfer of risk from weak to strong hands at
    the low, here, is that if strong-hand buyers recognize that any rally
    potential will not work, they will sell what they acquired right back onto
    the market, and the weak-handed bottom pickers will be buried under
    the weight of what will be thrown back onto the market and new
    additional selling, as well.

     Wait for a more opportune time.

    S&P 60m 9 Aug 11

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