The Sunny Side of the Street

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INDU_W_20030227.jpg (182934 bytes)
Figure 1- Weekly Chart of Dow [click to enlarge]
THURSDAY NIGHT - February 27, 2003
One of the world's kindest people left the planet today to go to the other side.  Fred Rogers, the world was a better place with you in it.  I like to take out this moment of time to share blessings with those of you who appreciate the grace in others and joyfully participate in giving back.  Bless you all.  Fred's passing makes me reflect on the reasons I am in the business of trading and teaching others to trade.  The trading question is an easy answer: to make money in an orderly and predictable fashion.  The teaching question is a little more obscure.  Unlike others whose primary source of income in in teaching, I give seminars as my way of sharing back with the community from the wealth created by the first answer.  It's my way of tithing.  And hopefully along the way I can teach you to be an independent trader, not a dependent one.

The weekly chart of the Dow in Figure 1 shows that we continue to tread along under the magenta trendline that was drawn on the two black squares since May of 2001.  The market has tested that line a couple of times, once not so successfully, and might now be moving upwards to test it again.  If that is so, the Dow needs to break the 8500 mark pretty soon, or it will tumble on down to the 7500 mark instead.  If I had drawn the line on the bottom you could see that this is also a broadening formation, that could just as easily be calling the market downward.  So, in short, the markets are pretty confused as to what to do from day to day.  This keeps the market action in constant flux with one day up and the next day down--in a very narrow range.  First it looks like we will hit the lower band in the next few days, then it looks like we are turning around and will become bullish.  Yet, all that really happens is fear of trading for longer than a few minutes for being wary of war breaking out.        

The Daily chart and 5-minute charts show a clearer picture of today's market action.  The day started down briefly, then bounced off the Attractor to move up quickly to the boundary (call it B1) set by yesterday's intraday high.  Most of the remainder

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Figure 2- QQQ chart, 5 minute time frame

of the day was spent going sideways at that level until about 11:30am when the market dropped back down to the Attractor formed by the previous day's mean pivot line (call it B2).  The market bounced off of that line and headed right back to the boundary B1. 

I traded a little bit in the confusion, pulling off a long from the bounce through B2 and holding only for a few minutes when we hit B1.  I sat on the side lines for the rest of the day until we started pulling away from B1, when I decided to go short.  I didn't see anything really compelling to take me out of my short position, so I'll open Friday morning holding a short position from overnight.

The pennant formed at the end of Thursday afternoon could, of course, go either way, but I'm expecting a quick opening gap down, where I'll get out of the short position.

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Figure 3- SPY 5 minute chart
From the long-term perspective, nothing much has happened.  I'm still holding short in the daily model and will continue in that stance until something compelling happens to make a long position attractive, or to make a double short position seem attractive.  Otherwise, its just a matter of patience.