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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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  • Nas-S&P E-Mini Spread Sending Mixed Signal. Spread Leadership Is Flagging.


    Thursday  21 January 2010

     Last week, we brought to your attention the Nas/S&P E-Mini spread as a
    leading indicator for market direction, NAS -E-Mini Spread - A Clue For
    Market Direction
    , click on http://bit.ly/8JyYYC.  We take another look at it
    today and compare it to the daily S & P chart to show what may be a
    divergence in the spread's leadership.

     4 September and 17 December are indicated on the spread chart to be
    compared to corresponding dates on the daily S & P chart.  The S&P price
    was cut off around the 4th, but price was under the highs from a week or two earlier, while the spread was already breaking upside out of the same
    trading range, leading the way up.

     The spread was also leading the way out of the November/December
    trading range several days before the market did.  A quick comparison
    between the two charts and dates shows this clearly.  Right now, the spread
    is struggling, having made high on 4 January, a full week before the market
    high on 11 January. It continues to make lower highs and lower lows.  The
    market, by contrast, has remained sideways in a rather dramatic fashion, 
    down 1300 tics, up 1300 tics, down 2200 intraday...evidence of a trading
    range.

     The leadership quality of the spread has been lagging.  Based on previous
    early signs, it is difficult to see the market rallying until the spread turns back
    up.  It is too soon to know if the spread is signaling a turn, or maybe it is
    obvious already and the market may break recent supports and turn down. 
    We will get confirmation of a market turn if and when price breaks under the
    1150 - 1125 price levels defining the range.

     The weekly trend remains up, but progress is laboring.  The daily trend has
    fast become range-bound in a January trading range with an upward bias,
    and the intra day trends are in a trading range making sharp up and down
    moves.  The sharp moves intra day are signs of a battle between the forces
    of supply and demand. 

     Volume on Wednesday's wide range downside break was greater than
    previous breaks, but the lower end of the range held the selling efforts. 
    Buyers successfully defended their territory as shown by the close, just
    under mid-range on the bar.  The only way we will know which way price is
    headed, with any degree of staying power, is when the highs are exceeded
    or the lows.  Until then, the current trading range struggle continues.

     The spread is suggesting a break, but it needs another lower close under
    730 to confirm its leadership has turned down, and the market will soon
    follow.  What we need to do as traders is to wait and follow the tape.

     Waiting.

    Nas-S&P D 21 Jan 10

    S&P D 21 Jan 10

    Tags: SPY, S P, QQQQ
    Jan 21 9:45 AM | Link | Comment!
  • S & P - Weak Demand, No Supply. A Market Lacking Character

    Wednesday  20 January 2010

     Tuesday saw a price reversal as 1,300 tic gains erased last Friday's 1300
    tic loss.  Price also stopped just under 11 January highs of 1148, and as
    the market opens almost 800 tics lower on Wednesday, unable to continue
    higher.  In fact, price has declined 1,400 tics, yet again, and the trading day
    is less than an hour old, as we write.

     Sellers looked like they were in control after Friday's close.  Buyers looked
    like they were in control after yesterday's close.  "Who's on first?" 
    Tuesday's rally was a lack of sellers.  It was not a demand-driven rally.  We
    make this point to give clarity to the character, or perhaps better expressed,
    lack of character that defines this market.

     In an uptrend, demand is proven, so the onus is on sellers to demonstrate
    they can change the trend.  We have already identified supply selling as
    selling on increased volume that breaks support levels.  This is in contrast
    to every day selling that occurs as a matter of course in any market.  When
    even ordinary selling lessens, we get the kind of rally that occurred where
    weak selling effort translates into the kind of rally that produced yesterday's
    gains. 

     Note the difference between the two days under discussion.  Friday's bar,
    4th from the right side, closed off the lows.  This showed some buying at the
    lows.  Yesterday's bar, second from the end, was a touch wider and closed
    right on the highs with no apparent selling standing in the way.  Volume was
    slightly less compared to Friday's volume.  What you are seeing is the poorly
    defined character of this continuing up trending market.

     Mention was made of the 11 January high.  The range for that day was
    small, and the close was middle of the range.  This tells us there was a
    stand-off between buyers and sellers at an area where buyers are
    supposedly in control, [at new contract highs].  Eight trading days later,
    price has acted like a yo-yo covering 960 tics and closing only 250 tics
    higher, net gain.  That was how November and December were defined,
    as well.

     These points leads to the conclusion we have been making throughout the
    past several months:  this market rallies in a weak manner, and that makes
    it vulnerable to supply coming in and taking over.  As we also acknowledge
    throughout the rallies, supply selling has been absent.  We know this from
    the lack of volume when price does sell off, and zero downside continuation
    on most any sell-off day.  Corrections are 1 to 3 days, typical in an up 
    trending market, yet gains are labored, evidenced by the trading ranges.

     If anyone is seeking clarity on the stock market, this is not a bad description
    to capture the lack of quality movement, in either direction.  What this says
    is that the market will continue in this meandering move up, but...and this is
    what keeps us from wanting to follow the upside, once any supply selling
    comes onto the market, it can break down very quickly.

     Caution continues to be the message.  There is no reason to be short. 
    None.  It is also difficult being long.  Sometimes sidelines is the best place
    to be.
     

    S&P D 20 Jan 10

    Tags: SPY, QQQQ, Dow
    Jan 20 10:35 AM | Link | Comment!
  • NAS-E-Mini Spread Remains Intact. Shows No Sign Of Change In Market Dirction


    Tuesday  19 Janaury 2010

     As a follow-up to the last article on the S & P, the spread we brought to
    everyone's attention last week,NAS -E-Mini Spread - A Clue For Market
    Direction
    , [click on http://bit.ly/8JyYYC], continues to show that the breaks
    seen, such as Friday's, tend to not have downside follow-through. Tuesday
    morning's early activity, in the first hour of trade, bears this out with an 800
    tic rally.

     Last week, the spread was near the support channel line.  Today, it
    continues to move higher, along with the markets.  What has been
    problematic is the yo-yo movement of price...down 1200 tics within the first
    hour's trade, and today's first hour trade has price rallying 1,000 tics. There
    was little preparation to indicate uninterrupted, quick moves as they
    occurred in 10 minute spurts, uncorrected.

     The overall activity since November has made the market difficult in which
    to be landed.  When you look at the recent gains from monthly high to
    monthly high, they are less than impressive for what has to be called a
    bullish move up since March of last year.  What makes it problematic from
    a technical perspective is that the lack of market strength inevitably invites
    sellers to step in and  take over, but for a variety of reasons, that has not
    been the case.  No matter how weak the rallies, selling efforts have been
    weaker, a market anomaly.

     It makes the anemic up moves suspect, yet after brief sell-offs, they
    resume higher in a grinding fashion. On the one hand, the grinding higher
    has bullish implications because it indicates shorts are continually being
    punished by having to cover and pay higher to get out.  Of course, we are
    talking about those shorts who ignore the market trend, and they should
    expect to be punished as a natural consequence.  On the other hand, the
    weak demand moves up are always susceptible to selling activity, and we
    just saw evidence of that this past Friday.

     The reason why we present the spread chart again is because spreads
    tend to lead, and as long as the spread points higher, this push-pull activity
    will remain standard fare.  The spread bears watching, at least on a weekly
    basis, as a possible shot across the bow to the bending trend that continues
    to confound and beat the bears.

     

    NAS-S&P D 19 Jan 10

    Tags: SPY, QQQQ
    Jan 19 10:57 AM | Link | Comment!
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