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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 - Let The Process Begin. This Is The Riskiest Time 0 comments
    Aug 10, 2011 11:25 PM

    Wednesday Evening  10 August 2011

     In yesterday's article, we said not to buy the first rally as what you
    are seeing initially is short-covering and not new buying.  [See 
     S & P - Temporary Relief, click on http://bit.ly/pKcDlO, second
    paragraph and last paragraph.]  That article gave a fairly extensive
    explanation of what to look for in the days and weeks ahead. 

     After such a strong key reversal day and on strong volume,
    Tuesday, one would have expected to see some upside follow-
    through, but it never happened.  Instead, there was yet another
    large drop in price.  Did it do any damage?  Psychologically,
    perhaps, as it kept many people scared for more of the same,
    and it may happen, but on the chart, Wednesday's sell-off closed
    above the Monday close, and volume was a bit less.

     What traders need to keep in mind is that activity on the left side of
    a trading range, and a trading range is what we expect to develop,
    activity is at its most precarious with strong moves up and down,
    increased volatility as buyers and sellers jockey for position to see
    who will prevail.  It is not the time to be taking a position.  Better to
    let the dust settle because the market could still make a new low as
    much as it could hold the Tuesday low.

     Yesterday, we talked about what kind of price activity to look for,
    and to give the market the time it needs to make a more definitive
    statement as to hold or get ugly again and go much lower.  There is
    little more that can be added until we see the character of developing
    market activity, moving forward.  The intra day chart does provide
    somewhat of an example of what we mean.

    S&P D 10 Aug 11 

     It is too early to rely on one day's activity after such a dramatic
    price breakdown, but we can use what transpired as an example
    of what needs to occur over a more protracted timeframe.

     We point out initial important support from the two highest volume
    bars on the close of the 9th.  The first bar, on highest volume of the
    day, closes mid-range.  This is an indication that buyers overcame
    sellers to rally price up on that bar and away off the low.  What
    followed was another wide range bar on equally high volume, only
    this time, the close was strong, on the high end of the range.  We
    see ease of upward movement, and that tells us buyers were
    definitely in control.

     The reason why we view this as important potential support is that
    is the buying is from strong hands, that area will be defended as
    support by not letting price go lower.  While Wednesday was another
    large day down, note how the ranges were relatively smaller in
    comparison the  two final bars from the 9th.  Note that the two highest
    volume bars on the 10th were red, indicating selling via a close lower
    than the previous bar, but there was no downside follow-through.

     Why not?  Sellers are suppose to be in control, but they could not
    muster any more of a threat.  Most important of all, look where the
    sell-off stopped, large as it seemed for that day.  It stopped at where
    the mid-range close and the low of the next bar began a strong up
    move the day before.  We said buyers were likely to defend this area,
    and that is what we saw.

     Things could change tomorrow, but this action says there is
    evidence  of buying/support.  What we need to see are several more
    trading days/weeks ahead just like this...not exactly, but exhibiting
    the character of strong buying followed by weaker selling.  We always
    maintain that the best source of information about the market comes
    FROM the market.  Everyone can have opinions, but the market
    delivers facts that can be observed and determinations made from
    those facts.

     Right now, there are not enough facts, and it takes time for the
    market to build a base, if it is to go higher, or to indicate an inability
    to rally higher as a prelude to lower levels to come.

     Best to keep one's powder dry, and let the market indicate when
    there is a clearer opportunity.  They always come along, but not a
    lot of traders are willing to wait and trade their opinions instead of
    the market's facts.

    Questions/comments to mn@edgetraderplus.com
    Web site: www.edgetraderplus.com

     S&P 60m 10 Aug 11

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