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Michael Noonan

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,…

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S n P - Caution for Bulls. Same For Bears

The market is undergoing a correction, but it is enough to call it a top? No. More evidence is required before saying that the Fed has thrown in the towel. If it takes more fiat to keep prices inflated, it will be provided. The alternative would be too painful for investors, [not of concern for the Fed], and too embarrassing to admit to the fraud of QE-Infinity to keep the bubble intact.

The stock markets are the antithesis to gold and silver. The latter have an insatiable demand, as price has declined. The former is void of demand as price has risen to all time highs. The Fed has driven what participants there are to the markets because there are no viable "earning alternatives" to match "rising" stocks. The Fed has chosen to destroy retirees and anyone else seeking gains in interest bearing instruments as a vehicle for income in its efforts to keep the market [lie] alive.

Just as there has been demonstrated manipulation on the Precious Metals, via naked short selling that has no intent of ever delivering what was sold, [anyone else would go to jail for the practice], the same holds true for the stock market. So how valid are the charts? They are all we have, so they must be judged based on what they show. At some point, the reality of [lack of] supply and [false] demand will prevail. All anyone can do is read developing market activity, for it tells the most accurate story of who is winning the battle, and ultimately, the war

Here is what the charts say...

The starting point is to give recognition to the most important element in reading and understanding any chart, in any time frame, and that is the trend. Trends have a proven tendency to persist, and when a trend stops, it takes time to turn it around. There are always signs to act as a guide.

Since the 2009 low, price has been in a steady up trend, with a few corrections along the way. Corrections are a natural and healthy reaction within any trend. What we see for the month of May, [new highs], is a mid-range close. The market's message from that kind of close tells us that sellers more than met the efforts of buyers at the upper part of the highs. The current unfolding decline ran out of month before finishing, so we must deal with what is, as just described, for it could have been worse.

Yes, yes...woulda, coulda, shoulda; just stick with the facts as they are. The trend is up, and there is not enough evidence to say a change has occurred, or even may occur. The higher monthly time frame is more prevailing in effect than lower time frames, and it always makes sense to keep this in mind.

ES Monthly Chart
Larger Image

The weekly time frame supports the trend of the monthly, up, and shows no sign of any change, at least none that would warrant going against it, at present. The last two swing lows show how long they took to correct, and how many points in each decline, before resuming the up trend. Volume has increased over the last two weeks as price declined, and using close stops, or simply taking profits, in individual stocks makes sense, but the Fed Bubble has not yet burst, based on the current chart structure.

ES Weekly Chart
Larger Image

The daily is the most sensitive to change of the three time frames covered. Even here, one has to respect past activity, like the April correction, and the market's ability to recover and rally to new highs.

We can say that the trend is still up overall, but presently trading sideways. More price development is required in order to determine the character of the present correction. If this market is turning, and existing evidence does not support that conclusion, yet, we will be able to assess the quality of the next rally, as it unfolds, and make a more informed decision. We stress "as it unfolds" because there is no reason to "predict" or get ahead of the market until it tells us, beyond doubt, its intent.

If volume picks up on the next rally and closes are strong, overall, then we can expect higher price levels. If the developing price activity is weak, as in lower volume on rallies, poor closes, increased volume and greater ease of movement on declines, then we put ourselves in a position to be in harmony with the current trend development.

The track record of those who have been "predicting" a top and shorting the market while in an uptrend is very poor, so picking tops is not a profitable endeavor. Let the market reveal its message, and then follow along.

For right now, the message is one of caution, for both the bulls and the bears.

ES Daily Chart
Larger Image


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