Best of the Week
Most Popular
1. Dollargeddon - Gold Price to Soar Above $6,000 - P_Radomski_CFA
2.Is Gold Price On Verge Of A Bottom, See For Yourself - Chris_Vermeulen
3.Dow Stock Market Trend Forecast 2018 - Nadeem_Walayat
4.Gold Price to Plunge Below $1000 - Key Factors for Gold & Silver Investors - P_Radomski_CFA
5.Why The Uranium Price Must Go Up - Richard_Mills
6.Dow Stock Market Trend Forecast 2018 - Video - Nadeem_Walayat
7.Jim Rogers on Gold, Silver, Bitcoin and Blockchain’s “Spectacular Future” - GoldCore
8.More Signs That the Stock Market Will Rally Until 2019 - Troy_Bombardia
9.It's Time for A New Economic Strategy in Turkey - Steve_H_Hanke
10.Fiat Currency Inflation, And Collapse Insurance - Raymond_Matison
Last 7 days
China Is Building the World’s Largest Innovation Economy - 21st Sep 18
How Can New Companies Succeed in the Overcrowded Online Gambling Market? - 21st Sep 18
Golden Sunsets in the Land of U.S. Dollar Hegemony - 20th Sep 18
5 Things to Keep in Mind When Buying a Luxury Car in Dubai - 20th Sep 18
Gold Price Seasonal Trend Analysis - Video - 20th Sep 18
The Stealth Reason Why the Stock Market Keeps On Rising - 20th Sep 18
Sheffield School Applications Crisis Eased by New Secondary Schools Places - 20th Sep 18
Precious Metals Sector: It’s 2013 All Over Again - 19th Sep 18
US Dollar Head & Shoulders Triggered. What's Next? - 19th Sep 18
Prepare for the Stock Market’s Volatility to Increase - 19th Sep 18
The Beginning of the End of the Dollar - 19th Sep 18
Land Rover Discovery Sport 'Approved Used' Bad Paint Job - Inchcape Chester - 19th Sep 18
Are Technology and FANG Stocks Bottoming? - 18th Sep 18
Predictive Trading Model Suggests Falling Stock Prices During US Elections - 18th Sep 18
Lehman Brothers Financial Collapse - Ten Years Later - 18th Sep 18
Financial Crisis Markets Reality Check Now in Progress - 18th Sep 18
Gold’s Ultimate Confirmation - 18th Sep 18
Omanization: a 20-year Process to Fight Volatile Oil Prices  - 18th Sep 18
Sheffield Best Secondary Schools Rankings and Trend Trajectory for Applications 2018 - 18th Sep 18
Gold / US Dollar Inverse Correlation - 17th Sep 18
The Apple Story - Trump Tariffs Penalize US Multinationals - 17th Sep 18
Wall Street Created Financial Crash Catastrophe Ten Years Later - 17th Sep 18
Trade Wars Are Going To Crash This Stock Market - 17th Sep 18
Why Is Apple Giving This Tiny Stock A $900 Million Opportunity? - 17th Sep 18
Financial Markets Macro/Micro View: Waves and Cycles - 17th Sep 18
Stock Market Bulls Prevail – for Now! - 17th Sep 18
GBPUSD Set to Explode Higher - 17th Sep 18
The China Threat - Global Crisis Hot Spots & Pressure Points - 17th Sep 18 - Jim_Willie_CB
Silver's Relationship with Gold Reaching Historical Extremes - 16th Sep 18
Emerging Markets to Follow and Those to Avoid - 16th Sep 18
Investing - Look at the Facts to Find the Truth - 16th Sep 18
Gold Stocks Forced Capitulation - 15th Sep 18
Hindenburg Omen & Consumer Confidence: More Signs of Stock Market Trouble in 2019 - 15th Sep 18
Trading The Global Future - Bad Consequences - 15th Sep 18
Central Banks Have Gone Rogue, Putting Us All at Risk - 15th Sep 18
Gold Price Seasonal Trend Analysis - 14th Sep 18
Growing Number of Small Businesses Opening – and Closing – In the UK - 14th Sep 18
Gold Price Trend Analysis - Video - 14th Sep 18
Esports Is Exploding—Here’s 3 Best Stocks to Profit From - 13th Sep 18
The Four Steel Men Behind Trump’s Trade War - 13th Sep 18
How Trump Tariffs Could Double America’s Trade Losses - 13th Sep 18
Next Financial Crisis Is Already Here! John Lewis 99% Profits CRASH - Retail Sector Collapse - 13th Sep 18
Trading Cryptocurrencies: To Win, You Must Know Where You're Wrong - 13th Sep 18
Gold, Silver, and USD Index - Three Important “Nothings” - 13th Sep 18
Precious Metals Sector On a Long-term SELL Signal - 13th Sep 18
Does Gambling Regulation Work - A Case Study - 13th Sep 18
The Ritual Burial of the US Constitution - 12th Sep 18
Stock Market Final Probe Higher ... Then the PANIC! - 12th Sep 18
Gold Nuggets And Silver Bullets - 12th Sep 18
Bitcoin Trading - SEC Strikes Again - 12th Sep 18

Market Oracle FREE Newsletter

Trading Any Market

SP500, DAX, FTSE - When Stock Markets Talk, Pay Attention

Stock-Markets / Stock Markets 2015 Aug 24, 2015 - 10:13 AM GMT

By: Michael_Noonan

Stock-Markets

Unlike government supplied statistics, which are always favorably skewed to misrepresent the lies being told, markets do not lie, not even manipulated ones like the stock market, actually pick almost any market. We gave up on the S&P as our primary market coverage a few years ago, unable to abide by the then Permanent Open Market Operations that were the impetus behind keeping stocks propped up. Faux government support kept on building, but we could not abet and support being long to help out. Our absence never mattered, except in the loss of followers, but the reasons mattered to us.


We never pay any attention to market news, almost all of which is worthless. What bears paying the most attention to is the actual market itself, and when it "talks," in the form of developing market activity, we take heed.

Patiently, we have been waiting for the sell side, once a top is confirmed. It appears a top is forming. The protracted TR activity over the past year could be either re-accumulation, in preparation for going higher, or it could be distribution in preparation to go lower. The action has had more of the earmarks of distribution, but the false government support has skewed activity, preventing normal corrections from developing. That can only go on for so long, and it may be so long to that form of market interference.

Last week's sharp decline looks like a game-changer. There have been many signs of potential topping action, but none that were being confirmed. Friday was confirmation. That said, it also need be said that markets often take time to top out in the distribution process. As things stand, the onus will now be on buyers, actually just the Fed, to effect change from the damage just done.

Some of the highlights from the weekly charts will be covered, all mentioned on the chart.

The difference between 1 and 2 is like night and day in understanding developing market activity. It is the market speaking the market's language, composed of price and volume, there for anyone and everyone to see, but few do. Bar labeled 2 is seemingly stronger than bar 1. Bar 2 developed while a rally was in process, so it had a buyer's wind behind its back, as it were. Bar 1 was a recovery from a sell-off, confronting a seller's headwind.

Yet, the rally following bar 1 was considerably stronger than the already in progress rally of bar 2 that simply fizzled out. The market was sending a message.

In other words, the relative strength of bar 2 was showing weakness, instead. It is the market telling us to be cautious because something is not right. There was no reward for the effort, and that is a red flag. A red flag does not mean imminent danger, although it can, depending on context. This one was a warning that a change could soon follow. There was a change, but is was a very gradual, grudging rally.

We did not point out the tiny range bar that became the high in May. The small range with a mid-range close was a huge red flag. It was a very clear indicator that buyers were weak.

See how volume dropped, then. Sellers were present by preventing the range from extending higher, but they were not strong enough to overcome the inexorable, but failing efforts of the Fed propping up the market.

Bar 4 shows increased volume, more than the prior day, yet compare the results for that increased effort. There was hardly any to show for the higher volume, another sign of buyer fatigue wearing thinner and thinner. That day's high stopped at resistance, and the close was mid-range, again letting us know sellers were more than meeting the efforts of buyers when buyers should have been in total control. These are all messages. All that was lacking was confirmation that change was pending.

The overlapping bars, 5 week's worth prior to last week was another tell that there was a battle going on between buyers and sellers, just under resistance. Long story short, last week put to rest that the artificially propped-up market could stay propped-up forever.

The warning signs have been there, and we have cautioned buyers to not be in stocks for any reason, in prior months. It was and always has been a matter of time for change.

As an aside, the 100 point TR in the S&P, just since March, contained price swings totaling over 1,450 points. That kind of churning is a recipe for undue risk, also more of topping action than for continuation higher.

E-Mini S&p500 Weekly Chart

Note the small range bars forming the July high, and then look at the drop off in volume as the high was developing. Buyers were AWOL. We could spend hours dissecting these charts to relate what message the market was sending. Look at the wide ranges that were overlapping in early July. There was a HUGE struggle going on between buyers and sellers. Judging from the ensuing rally, one would think buyers prevailed.

After such fight between opposing forces, you would expect the victor, buyers, to be off and running, but all they did was run out of steam. That was a significant tell. From the end of July through most of August, there was another epic struggle, obvious by the overlapping bars, an overt clue once you understand what overlapping bars mean. 2100+ was now forming a minor resistance, and note how the 4th bar from the end failed as the last rally prior to last week's collapse. Small range, poor close, no demand. When there is no demand, it opens the door for sellers. Market reality made its presence known, last week. All of this transpired at the RHS of a protracted TR. [RHS = Right Hand Side, TR = Trading Range.]

Market resolve ALWAYS comes at the end of the RHS of a TR, a market truism. What can never be known is how long a TR will last, but the results will always show up in signs of strength or weakness, and the S&P had been flashing weakness for months. It takes patience to wait for confirmation, but waiting can save capital from undue risk exposure and prevent large losses when markets collapse, as they did back in 2008.

E-Mini S&p500 Daily Chart

The chart comments are more of what we have been explaining, and for the chart-impaired, if you follow the simple logic behind the explanations, the market activity begins to make absolute sense from chart bars that many view as nonsense, primarily due to ignorance and no fault of the developing market activity story. It is all there, but it just goes unseen by seeing eyes.

Time frames do not matter. Just as there was a weak rally into the high in July on the daily chart, there is a similar weak high on this 90 minute intra day chart at 1. If you knew in July what we expressed, it could have been put to use in mid-August. Weak demand opens the door for sellers. Sellers entered on the 19th, #2, where a high volume struggle took place and a downward reversal occurred at the end.

For those who paid attention, the struggle at #2 was also at the end of the RHS of a TR where breakouts of the TR happen. [The end of the TR was there. Did you see it, or did it remain visibly invisible?] The clue at 1 led to the clue at 2 which led to a break down in price. Was there any way to know how much or how far price could/would break down? Absolutely not. But, the beauty part is, one does not have to know the unknowable.

Just take direction from the message[s] of the market, and see where it leads. Sometimes, it can even lead to a loss, but that is less frequent and a cost of doing business.

Friday's high volume at the lows could be a form of stopping action, temporary, given the character of the decline. There could be more downside just as momentum follow through, but the high volume is a red flag that says a reaction, normal in any market, could develop.

This has been a hindsight analysis, even though we have given ample warnings in the past, just not knowing when a top would develop. What it does is give guides for where and when one could be a seller on weak reaction rallies, or rallies not so weak but end weakly as another sell-off develops.

Is a top in? Possibly, which is not a hedge answer. We just do not know, nor do we need to know. All that is needed is a read of developing market activity at key areas that make the probability of being on the right side of a trade higher than not. Those are actually good odds when the market message is clear.

We will be paying more attention to this market, moving forward.

E-Mini S&p500 90-Minute Chart

We also took a look at the two larger European markets, even if the Brits do not consider themselves as such. It was a surprise to see how much clearer the topping action has been for the DAX, a market we have obviously not followed for quite some time. The May breakdown and weak retest rally, 3rd week of July, was the tell, the clue, the red flag to look for reasons to sell.

The DAX is also declining into support. The play in all stock markets will be to look for signs of weakness in rallies as a place to short. As we say that, it does not presume a top has been totally confirmed, while more likely than not; we just happen to know what signs to look for and which ones to avoid. We do not follow the DAX closely, but if we happen to see something, we will share it.

DAX Weekly Chart

Finally, the FTSE which has been more akin to the S&P with overlapping bars and testing of one's patience. The high was followed by overlapping bars, a clue for potential change, as well as a clustering of closes, another clue for potential change. The failed rally effort on increased volume in April spoke volumes.

There is a reason why we say the best and most reliable information comes from the market itself. It is also the most reliable, for it never lies, and many trading opportunities lie within those messages.

You can always send questions [reasonable ones] to mn@edgetraderplus.com

Cheers...

FTSE 100 Weekly Chart


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.

© 2015 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