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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 - Time To Be Defensively Pro-Active. 0 comments
    Aug 25, 2013 2:52 PM

    Sunday 25 August 2013

    We are no fans of the Fed-sponsored stock market takeover, but thatseems to be the way of central planners, these days...eliminate
    free markets and get them to react how it puts central planning and
    Lying Ben's disastrous QE4Ever in a positive light, no matter that
    everything else is falling apart.

    As we look at the artificially driven charts, like those of gold and silver,
    there are some warning signs of which one should be aware. Now is the time to take stock of your stocks, and weed out the poor
    performers. One of the biggest mistakes individuals make is to hold
    onto them in the hopes that they will "catch up" to the rest of the market. It is always best to jettison anything that is not working or
    creating losses, or even just marginal gains, for they can quickly turn
    red and not look back.

    For the balance of stock positions, use tight stops, even though many
    who are in the stock market do not use them. Big mistake! Stops lock in price and eliminate the emotional element for making a decision at a
    time when a decision needs to be made.

    We will use a weather analogy for the various time frames. Everyone
    can relate to the weather and understand what clouds and sunshine
    mean. The monthly time frame is first. Remember, higher time frames
    are used to put a market into a context, and they take longer to turn. The process is typically from up, to sideways, before turning down.

    The monthly chart shows a sunny day, but there are a few clouds
    forming. Price is at new all-time highs, but the activity is not very
    convincing. Note how the bars are overlapping, unlike the rally bars
    just prior to the previous four weeks. The 3rd and 4th bars have mid-
    range closes on much higher volume than the 1st two bars. From this
    we know that sellers were active at the highs. The lower volume of
    the last 2 weeks says demand is flagging, and it could be a red flag
    waving. Needs more information/time.

    What makes the above more interesting is that the activity is
    occurring at the overbought channel line. This, too, bears watching
    because while overbought can lead to a correction, it can also lead to
    more overbought. The point is to respect the momentum of the trend,
    and the monthly trend is up, with just a few clouds.

    ES M 25 Aug 13

    The weekly chart represents a cloudy day with occasional breaks of
    the sun. The clouds are not storm clouds, for they are not dark

    The decline, at "A," was on sharply higher volume, while the "B" rally
    was on decidedly less volume, [lack of demand]. The possible "kicker"
    is "C." It was a decline that erased the previous 4- 1/2 weeks on the
    highest volume over the same time span. That would be a darker
    cloud formation because it followed a brief series of small range rally
    bars that were overlapping and making minimal upside progress.

    Patterns show up in the markets all of the time, and just like weather
    patterns can tell you what to expect for the foreseeable future, so
    can chart patterns. We point to a similar one from early 2011, [see
    boxed area]. While a weather pattern can look ominous, if a break in
    the clouds leads to better weather, the previous warning signs have changed, for the better. If there is no break to be seen, expect the
    developing pattern to continue, as it did in 2011. It is too soon to tell
    for 2013, at this point, but one cannot deny there are warning signs.

    Relative to the monthly chart, the weekly is not as sunny, but an
    umbrella is not yet needed. The "weather" pattern can still change for the better, just as it did after the May decline.

    ES W 25 Aug 13

    The daily, a weatherman's dilemma. [We still remember Ginger Zee
    when she was in Chicago, so we include weatherwoman, too]. It looks promising for a while, then some clouds form overhead, remaining for
    some time, and finally they turn for the worse, as happened at the
    Axis Line, seven TDs ago. If the "change in weather" on the daily
    chart does not improve, it will impact the weekly chart, and that will
    then impact the monthly, but that has not yet happened, for the
    changes are not yet conclusive. Not good, but still needing
    confirmation. Seven days ago the rains started.

    What helps keep a little hope for the daily chart is the fact that the
    monthly and weekly are still showing up trends. The daily is sideways
    to almost down. Last week's decline did stop at a 50% retracement
    area. It is a general measure to indicate the strength or weakness of
    a trend. For now, the daily remains tenuous.

    If the daily says anything, it is a reminder that while dogs may make great pets, they do not belong in anyone's stock portfolio. Get rid of
    them and protect what remains, and keep the umbrella handy.

    ES D 25 Aug 13

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