Best of the Week
Most Popular
1. Ray Dalio: This Debt Cycle Will End Soon - John_Mauldin
2.Stock Market Dow Plunge Following Fake US - China Trade War Truce - Nadeem_Walayat
3.UK House Prices 2019 No Deal BrExit 30% Crash Warning! - Nadeem_Walayat
4.What the Oil Short-sellers and OPEC Don’t Know about Peak Shale - Andrew_Butter
5.Stock Market Crashed While the Yield Curve Inverted - Troy_Bombardia
6.More Late-cycle Signs for the Stock Market and What’s Next - Troy_Bombardia
7.US Economy Will Deteriorate Over Next Half Year. What this Means for Stocks - Troy_Bombardia
8.TICK TOCK, Counting Down to the Next Recession - James_Quinn
9.How Theresa May Put Britain on the Path Towards BrExit Civil War - Nadeem_Walayat
10.This Is the End of Trump’s Economic Sugar High - Patrick_Watson
Last 7 days
Stock Market Topping Formation as Risks Rise Around the World - 11th Dec 18
The Amazing Story of Gold to Gold Stocks Ratios - 11th Dec 18
Stock Market Medium term Bullish, But Long Term Risk:Reward is Bearish - 11th Dec 18
Is a Deleveraging Event about to Unfold in the Stock Market? - 11th Dec 18
Making Money through Property Investment - 11th Dec 18
Brexit: What Will it Mean for Exchange Rates? - 11th Dec 18
United States Facing Climate Change Severe Water Stress - 10th Dec 18
Waiting for Gold Price to Erupt - 10th Dec 18
Stock Market Key Support Being Re-Tested - 10th Dec 18
May BrExit Deal Tory MP Votes Forecast, Betting Market Analysis - 10th Dec 18
Listen to What Gold is Telling You - 10th Dec 18
The Stock Market’s Long Term Outlook is Changing - 10th Dec 18
Palladium Shortages Expose Broken Futures Markets for Precious Metals - 9th Dec 18
Is an Inverted Yield Curve Bullish for Gold? - 9th Dec 18
Rising US Home Prices and Falling Sales - 8th Dec 18
Choosing Who the Autonomous Car Should Kill - 8th Dec 18
Stocks Selloff Boosting Gold - 8th Dec 18
Will Weak US Dollar Save Gold? - 7th Dec 18
This Is the End of Trump’s Economic Sugar High - 7th Dec 18
US Economy Will Deteriorate Over Next Half Year. What this Means for Stocks - 7th Dec 18
The Secret Weapon for Getting America 5G Ready - 7th Dec 18
These Oil Stocks Are a Ticking Time Bomb - 7th Dec 18
How Theresa May Put Britain on the Path Towards BrExit Civil War - 7th Dec 18
How easy is it to find a job in the UK iGaming industry? - 6th Dec 18
Curry's vs Jessops - Buying an Olympus TG-5 Tough Camera - 5th Dec 18
Yield Curve Harbinger of Stock Market Doom - 5th Dec 18
Stock Market Crashed While the Yield Curve Inverted - 5th Dec 18
Global Economic Outlook after Trump-Xi Trade War Timeout - 5th Dec 18
Stock Market Dow Plunge Following Fake US - China Trade War Truce - 5th Dec 18
Subverting BREXIT - British People vs Parliament Risks Revolution - 5th Dec 18
Profit from the Global Cannabis Boom by Investing in the Beverage Industry - 4th Dec 18
MP's Vote UK Government Behaving like a Dictatorship, in Contempt of Parliament - 4th Dec 18
Isn't It Amazing How The Fed Controls The Stock Market? - 4th Dec 18
Best Christmas LED String and Projector Lights for 2018 - Review - 4th Dec 18
The "Special 38" Markets You Should Trade ebook - 4th Dec 18
Subverting BrExit - AG Confirms May Backstop Deal Means UK Can NEVER LEAVE the EU! - 3rd Dec 18
The Bottled Water Bamboozle - 3rd Dec 18
Crude Oil After November’s Declines - 3rd Dec 18
Global Economic Perceptions Are Shifting - Asia China Markets Risks - 3rd Dec 18
Weekly Charts and Update on Equity Markets, FX Trades and Commodities - 3rd Dec 18
TICK TOCK, Counting Down to the Next Recession - 3rd Dec 18
Stock Market Key (Short-term) Support Holds - 3rd Dec 18
Stocks Bull Market Tops Are a Process - 3rd Dec 18
More Late-cycle Signs for the Stock Market and What’s Next - 3rd Dec 18
A Post-Powell View of USD, S&P 500 and Gold - 2nd Dec 18
Elliott Wave: SPX Decision Time Is Coming Soon - 2nd Dec 18

Market Oracle FREE Newsletter

How You Could Make £2,850 Per Month

Stock Market Best Offense Is A Good Defense

Stock-Markets / Stock Markets 2013 Sep 03, 2013 - 05:59 AM GMT

By: Michael_Noonan

Stock-Markets

If you do not use stops in a market, do not complain about giving back profits or taking larger losses. That is the negative approach to handling one's portfolio, and for some reason, more the norm for stock investors/traders.

Change is inevitable, but it needs some direction. The use of stops will eliminate a lot of emotional decision-making and help shore up a weakness in strategy, but simply doing away with weakness does not ensure strength. Those areas which will improve overall performance need even greater development. The best way is to have a set of rules.


Every successful trader we know of not only has a set of rules, but they are also written down and reviewed weekly, if not daily. The rules need not be complicated, but they should be consistent, for consistency will have you acting in the same way under similar circumstances that ensures better performance results.

A set of rules develops out of your individual market approach and needs to fit your trading/investing style. One of the simplest is to always be in sync with the trend. This requires a knowledge and understanding of what constitutes a trend. Higher highs and higher lows is one easy measure. Some may employ a set of moving averages. Whatever the choice, it needs to be applied uniformly, instilling discipline by always adhering to your established and written rules.

Trend application will be evident in the following charts to better understand where the market is and what it may be telling us. There is a divergence of strength between the S&P and the NASDAQ, the latter showing more strength than the former. We start with the S&P monthly.

In addition to understanding trend, the concept of relative strength is a crucial part of knowing which stocks to hold and which to sell. Always stay with strength, and always sell weakness. That will become more apparent in the next chart.

The S&P has rallied into new high ground, but the bars have been overlapping since that event. The overlapping of bars indicates a struggle/balance between buys and sellers at a level where buyers should be in control.

This is where any holdings within this index should be reviewed, and marginal or poor performers should be weaned, for if they cannot do well as price enters new highs, they will not hold up very well if/when the market turns. Then, carefully monitor those that are profitable, and place a stop under a recent swing low or price level you would not want to see your stock go lower on you.

It will be worth watching to see if the low monthly close pattern of price reversal maintains itself for September, historically a month when prices are generally lower.

Here is where relative strength shines out. Compare the price location of the current high in the S&P, relative to its 2007 high, then look at where the NAS index is relative to its 2007 swing high. Tech stocks have been faring much better. Any holdings in tech stocks that have not kept pace with the index are relative weak performers, and one would not want to be holding onto weakness during a period of strength. It is just common sense.

You see greater detail on the weekly chart, and the 4 smaller rally bars leading up to the high shows a lack of demand. In new high ground, when price cannot rally in a stronger fashion, it raises a red flag. The trend is showing signs of being tired, not ending, but struggling. Marginal winners, and certainly all losers in one's portfolio deserve attention as to retention.

From the high, there was Ease of Downward Movement, [EDM], three weeks ago. One has to watch how the next rally responds to a retest. If it struggles on small ranges and weak volume, the market will be signaling more weakness can easily follow. Plan accordingly.

Stronger, again, compared to the S&P, the weekly NAS shows clearer signs of tiring by the overlapping of bars. Last week's bar was wide with a poor close, but it held support from the May swing high, [horizontal line]. The arrow pointing to the September 2012 swing high demonstrates why small range bars can be a clear warning, and one should heed them.

The detail from the daily shows why some concern was expressed for developing market activity on the weekly. The Axis Line acts as support when price is above and resistance when price is below. The latter August rally failed right at that level and produced an EDM bar which, interestingly, did not result in further downside movement. Price retested that low on Friday, [second bar from the end], and held, as the market has rallied on Monday.

The first test will be the small resistance dashed line, just under 1670. If price sails through it, the S&P should work higher. If not, stops become very important, or even selling some gains to lock in profits. It all depends upon one's objectives, and profit ranks high.

The struggle within the NAS is apparent. The strength of the monthly and weekly charts gives the benefit of any doubt to the up trend reasserting itself. If price breaks under the support area, around 3050, the daily trend turns down.

By Michael Noonan

http://edgetraderplus.com

Michael Noonan, mn@edgetraderplus.com, is a Chicago-based trader with over 30 years in the business. His sole approach to analysis is derived from developing market pattern behavior, found in the form of Price, Volume, and Time, and it is generated from the best source possible, the market itself.

© 2013 Copyright Michael Noonan - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Michael Noonan Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules