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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 - First Gather All The Facts. Then Make An Informed Decision. 0 comments
    May 17, 2010 11:44 PM

    Tuesday  18 May 2010

     How prescient and timely was the last article stating that not every day is a
    significant one.  Of course, that was not meant to apply to Monday's trade,
    for yesterday provided some significant information.  This is a perfect
    illustration of how one can never know how a market will unfold from one day to the next.  Yesterday was a bit of a surprise, and one with a bullish
    response.  Now on to gathering the market facts.

     Always, always the first determination is identifying the trend of the time
    frame under consideration.  The chart below is daily, and that trend has
    been determined as being down.  The overnight low, Sunday evening into
    Monday morning, was 1120 with a rally up to 1140.  In a down trend market,
    this is clearly a show of some responsive strength. 

     Price corrected to 1130, which is a 50% retracement.  When price can hold
    a 50% area, it indicates some underlying strength.  Once the day session
    was under way, 1130 was tested again, and held.  That was sufficient for us
    to exit remaining short positions at 1133, short from 1158.  As it turned out,
    rallies after the exit were weak, and the likelihood of 1130 support failing
    became stronger.

     Not only did 1130 fail to hold, but so did the overnight 1120 low.  The next
    level of support, 1115, gave way, just a bit, as downward momentum carried
    price to 1112.  What happened as the low was registered is where the
    observable facts become important. 

     On an intra day SPY chart, [cash S&P market], not shown, the highest
    volume bar occurred right at the low, on a 10 minute chart.   This suggested
    the potential of stopping action.  The 60 minute chart also had the highest
    volume bar, at the end of that period, and the close was mid-range.  A
    mid-range close on increased volume at the low of the day tells us buyers
    were present.  It took a few more hours, but price held steadily and then
    began to rally, closing back near the highs of th day.

     We know that 1120 was the overnight low, and it was followed by a 20 point
    rally to 1140.  Once the day session began, the weakness exhibited by the
    market was a non-stop decline, taking out the established low.  There are a
    few observations to be made in that regard.  The breaking of the overnight
    low did not lead to continued weakness.  Price recovered and rallied about
    23 points.  The day session low, actually 1112.75, held above last Friday's
    close.  That, too, is a subtle plus in this market environment.
     

     Volume was strong, about equal to, maybe even greater than Friday's
    volume.  With the close near the high end of the bar, we can state that the
    buyers dominated by the end of the day.  These things happen in a down
    trend and should be recognized because it makes a selling strategy more
    respectful of the potential counter-trend rally.  All of these observations are
    undisputed facts about describing market activity.

     What do they mean within the context of a down trending market?

     It tells us that the potential exists for a retest of the 1175 area.  Will it
    happen?  Too soon to tell, but prior to yesterday, the 1154 - 1160 area
    looked like an area of resistance that price could retest.  It is still the first
    area to watch for how any retest goes, but today also puts the 1175 area
    into play.  Now we get to monitor the developing strength or weakness of
    an expected rally to come out of today's impressive performance.  How
    that rally unfolds will determine when and where new short positions can
    be added.

     Keep in mind that price can continue to develop and rally above 1175,
    maybe even change the down trend status.  This is a lower probability, for
    now, but we must remain flexible in viewing the market be able to adjust to
    newly developing information.

     Conversely, if a market rally is weak in development, it will increase the
    growing probability of yet lower price levels in a greater down move.

     Short positions from 1158 have now been covered at 1129 on Friday, and
    1133 on Monday.  In a down trend market, we are flat, for now, for all the
    above factually-gathered reasons.  Now we wait for new market clues to
    develop and be ready to respond appropriately.

    S&P D 17 May 10

    Themes: SPY, S P, QQQQ, DOW
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