S & P - What Is Wrong With This Picture? Little Is Right.

Mar. 01, 2011 1:06 AM ET
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Contributor Since 2009

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 managed money in the cash bond market for a $5 billion pension fund using Peter Steidlmeyer’s Market Profile. Proficient in Gann, Elliott Wave, Market Profile, etc, Mr Noonan no longer uses any of those technical procedures. Instead, his primary focus is on developing market activity, relying solely on the information generated by the market itself, such as the interaction between price and volume, and how they relate to important price levels in the market structure. He incorporates proven market principles, such as knowledge of the trend, supply and demand, along with disciplined rules for to find developing high probability trade opportunities. He can be reached by e-mail at his website: mn@edgetraderplus.com

Monday Evening  28 February 2011

  In a bull market, you will see volume increase as price rallies,
and then volume decreases on corrections.  This is not a
generalization for the volume observations just given are the
character hallmark of a bull move.  Let us qualify the comment
by saying, in a normal bull market, one that is not, let us say,
being blatantly manipulated with government assistance.

 We are showing the last important high volume bars below. 
Each one measures trading when price was in a decline for the
day.  When volume is greater on declines than it is on rallies, it
indicates that sellers are present.  At the end of January, the
high volume decline erased a week's worth of trading effort to
the upside.  Yet, within two days, price rallied on less volume,
and continued higher on even less volume to new highs.

 Note the small range at the very high.  It shows a lack of demand
gauged by the decline on volume activity.  Next day, when price
dropped sharply, volume more than doubled, and it erased about
two weeks of advance.  That decline was followed by two more
down days and still very high volume.  The broader scope would
say there are red flags going off, yet contrary to the facts of the
analysis, price continues to defy well-established tenets of market

 The best reason we can give for the increased volume on
declines is that there is large liquidation going on because one
rarely ever sees "smart money" increased their buying activity
at new highs.  We do not include the Federal Reserve in the
category of "smart money."  Of approximately 67 stock leaders,
only 22 were higher on the day, Monday, and the NASDAQ
index was only up 1%.  This tells us that the internal make-up
on the market is weak, even as the overall market rallies.

Until the smoke clears, and we see it as "blowing smoke," we
are on the sidelines.  It looked like a weak rally on less volume
would invite a short.  The volume has been less, Friday and
Monday, but the close for each day was on the upper end of
the range.  The location of the closes tells us buyers were the
net winners for both days, and sellers were not exerting any
follow-through attempt to control the market.

 The risk-reward in being long at this high level is not positive,
just by noting how one down day can erase several up days. 
There is still no reason for being short, so we will follow the odds,
and they are not good for either direction, hence the sidelines.

S&P D 28 Feb 11

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