The Sunny Side of the Street

In yesterday's commentary I ended by saying: "For that reason, I suspect that tomorrow will be a very choppy day, but not necessarily another straight down day.  The Attractor at 8413 is likely to be the target for tomorrow's action, with a lot of bouncing around in the meantime."

As it turned out the market was indeed sideways in character, even though it ended with a positive gain.  The Attractor at 8413 was approached, but the Dow made it no higher than 8326.70, leaving a little more to go for tomorrow.  The market started the morning with a bit of a stumble, and then showed some strength until about 11:30am. Interestingly, from a technical standpoint, the turning point was an Attractor setup from 3/20 and 3/21.  The drop, and then the 3 bar recovery climb back up at the end of the day put the INDU right back on the trendline that forms the broadening pattern I have been discussing for the last week or so.

Figure 1- INDU showing Broadening Formation

The QQQ today made a serious effort to climb to the Attractor at 26.81, but it didn't quite make it.  Notice in Figure 3 that when price broke through the SunnyBands midline early in the morning session it went straight for the top SunnyBand.  Price pushed the SunnyBands up for 11 bars before pressure lessened and price made 4 sideways bars.  That was the "Be Aware" sign.  Buyers and Sellers were equal at that point, no one fighting harder, no fear and greed, just indecision--what I call a Chicken Market. Then came the drop, after we were already wary and alert.  And, the drop stopped exactly at the 26.37 Attractor which has been in place for weeks. If you are a user of my SunnyBands and are are very short-term trader, you know to take profits when price backs away from the upper SunnyBand. 

Figure 2- QQQ Daily showing channel

Notice also that the Average True Range is getting tighter and tighter.  What does that mean?  Another sharp move is likely imminent. Yet, if you look at the chart in Figure 2 (the daily chart of QQQ) you will see that the Average True Range is on an upward move.  So, is it or isn't it?  On an intraday basis price moves are narrowing, while on a daily basis price moves are widening.  To me that says that the market is ready to handle another large daily move with large intraday activity.

Figure 3- QQQ 15-minute chart

So, if those things turn out to be true, tomorrow should be a day for fast scalping.  By that I mean that if you play it fast enough there should be several moves with enough size to them to trade.  How big?  When do I take profits?  Well, let's look again at Average True Range.  Daily ATR is right at 0.8 points.  The distance between the two Attractors I have drawn on the 15-minute chart is about 0.5 points.  My guess is that (barring any dynamic news event like Saddam Hussein's body has been found) the QQQs will drop slightly to the Attractor at 26.37 and then bounce up to the upper SunnyBand.  Again, barring any catastrophic news, the QQQs will encounter difficulty at the upper band and after a little staggering should head back down to the lower SunnyBand.  And then it might happen one more time before the day is over.

Another confirmation, and tool that I used in making that educated guess about tomorrow, is the RSI.  Daily RSI is nearing the top at 65 and will want to finish going up before bouncing off the 65 line, while 15-minute RSI is nearing the bottom and will want to finish with a bounce at the 40 level.

Remember, it is all just educated guessing.  Keep your eyes on the market.  It will tell you what to do.  The old adage "the trend is your friend" is all you really have to go on.  Try to discern the trend and stay with it, remembering that ATR is not very large these days, so don't expect huge, long runs like we used to have in the old days.