Best of the Week
Most Popular
1.Stock Market Crash and Recession Indicator Warning: Extreme Danger Ahead - Harry_Dent
2. Is This How World War III Begins, In Almost Complete Silence? - Jeff_Berwick
3.Trump Wins 2nd Presidential Debate, Betfair Betting Markets Odds Bounce - Nadeem_Walayat
4.Why Krugman, Roubini, Rogoff And Buffett Dislike Gold - GoldCore
5.End of SPX Stock Market Correction Nears - Tony_Caldaro
6.Get Ready for the Future - Exponential Machine Intelligence Mega-trend towards Singularity - Nadeem_Walayat
7.US Housing Market Bubble II – It’s Happening Again! - Andy_Sutton
8.FTSE BrExit Stock Market Panic Crash Resolves towards New All Time Highs - Nadeem_Walayat
9.Can Trump Still Win Despite Opinion Polls, Bookmakers and Pundits all Saying Hillary has Won? - Nadeem_Walayat
10.Gold’s, Miners’ Stops Run - Zeal_LLC
Last 7 days
Stock Market Investment Success Through the “Investment Rule of 72” - 21st Oct 16
The Final Bottom in Gold - WHEN - 21st Oct 16
Gold Green Lights Upleg - 21st Oct 16
Demand for US Mints Silver Eagles has ‘Returned with a Vengeance’ - 21st Oct 16
Central Bankers Can't Stop The Death Blow Of The Post US Election Recession - 21st Oct 16
The Fortune at the Bottom of the Pyramid: Golden Opportunity for Frontier Asia - 21st Oct 16
Have You Taken These 4 Simple Steps to Improve Your Trading? - 21st Oct 16
The Stock Market is an Accident Waiting to Happen - 20th Oct 16
It's Rally Time for Gold and Silver Equities - 20th Oct 16
Cashless Society – Risks Posed By The War On Cash - 20th Oct 16
China's Insanely Leveraged Housing Market Will Enter Its Secular Bull Market In 2017 - 20th Oct 16
Donald Trump Bounces Going into 3rd and Final US Presidential Election Debate - 20th Oct 16
Attention Please: Phase Two of the Gold and Silver Train Now leaving the Station. All Aboard? - 19th Oct 16
How to Successfully Trade a Stock Market Crash - Black Monday October 19th 1987 - 19th Oct 16
Tesla, Apple and Uber Push Lithium Prices Even Higher - 18th Oct 16
Silver, Debt, and Deficits – From an Election Year Perspective - 18th Oct 16
UK Property Market: Slow Growth Does Not Equate To Decline - 18th Oct 16
Trump Election Victory is in Your Power - 18th Oct 16
Stock Market More to Come! - 18th Oct 16
This Past Week in Gold and Silver - 17th Oct 16
A Falling Stock Market Cannot Be Allowed - Financial Repression Is Now “In-Play”! - 17th Oct 16
Commodities, Forex and Stock Market Trend Forecasts - 17th Oct 16
Stock Market Crash..or No Crash? - 17th Oct 16
A perspective on risk rally – Risks abound but Stock Market is Confident - 17th Oct 16
Bank of England Blames Brexit for Sterling Drop Inflation, Masks QE Money Printing Cause - 17th Oct 16
From Piety to Pride to Pity, America's Racial Divide - 17th Oct 16
Is Obama Juicing US Government Spending To Get Hillary Clinton Elected? - 16th Oct 16
Seek Your Independence: Anything Else Will Destroy You - 16th Oct 16
SNL - US Presidential Debates, 1st, 2nd, VP - Like You've Never Seen them Before! - 16th Oct 16
End of Economic Growth Sparks Wide Discontent - 16th Oct 16
Donald Trump on Life Support, May Abandon Election Campaign and War on Republican Party - 15th Oct 16
The Gold Manipulators Not Only Will Be Punished, They Have Been Punished - 15th Oct 16
Black Votes Matter - Is the US on the Verge of Mass Race Riots? - 15th Oct 16
Gold Stocks Screaming Buy - 14th Oct 16
Brace Yourself for the Quadrillion-Dollar Reckoning - 14th Oct 16
The Next Recession Will Blow Out the Budget - 14th Oct 16
John Mauldin: My Infrastructure Plan to Save the US Economy - 14th Oct 16
World War III On The Brink: War Will Continue Until It Triggers Economic Collapse - 14th Oct 16
US T-Bill Rejection At Ports In Progress - 14th Oct 16
These 2 Debt Instruments Pose Peril to Millions of Investors - 14th Oct 16
China’s Rocketing Housing Market Real Estate Bubble - 14th Oct 16
DIY Winter Home Maintenance Money Saving 22 Point Checklist to Get Ready for Winter/Fall - 14th Oct 16
US Stock Market, Big Picture View - 13th Oct 16
Stock Buybacks Main Force Driving Bull Market; Rewards Investors and Starves Innovation - 13th Oct 16
SPX Gapping Down... - 13th Oct 16
Syria - Obama Stepped Back From Brink, Will Hillary? - 13th Oct 16
The Structure and Future of Gold in the Investment and Monetary World - 13th Oct 16
Can Trump Still Win Despite Opinion Polls, Bookmakers and Pundits all Saying Hillary has Won? - 12th Oct 16
Gold and Crude Oil - General Stock Market Links - 12th Oct 16
Samsung's Galaxy Battery Just The Tip Of The Iceberg - 12th Oct 16
Hillary: Deceit, Debt, Delusions (Part Two) - 12th Oct 16
Gold and Silver Metals Show Strength Relative to the USD Index - 12th Oct 16
Announcing Trader Education Week -- a Free Event to Help You Learn to Spot Trading Opportunities - 12th Oct 16
Confirmed Stock Market Sell Signals - 11th Oct 16
Hillary Deceit, Debt, Delusions - 11th Oct 16
Trump Support Crashes to New Low of 6.4 on Betfair Odds Betting Market - 11th Oct 16
The World Is Turning Dangerously Insular - 11th Oct 16
An American Tragedy: Trump Won Big - 11th Oct 16

Free Instant Analysis

Free Instant Technical Analysis

Market Oracle FREE Newsletter

LEARN to Trade

Stock Market Best Offense Is A Good Defense

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

By: Michael_Noonan


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

Michael Noonan,, 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

© 2005-2016 - 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

Catching a Falling Financial Knife