The Sunny Side of the Street
WEDNESDAY NIGHT - May 14, 2003
(Click on any chart to make it larger.)
Figure 1: Daily INDU
The model for the daily chart is Long, while the model for the intraday chart is still short. Quel conflict! Today's intraday chart was down to sideways as the markets all retreated back to test the former line of resistance, which is now support. The long trade on the daily chart is still holding steady until it retreats to the Sunny_Bands. Yet, on the intraday chart the E-mini has been short for the second day now.
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Figure 2: QQQ Daily
The QQQs, the INDU and the E-minis are all in lock synch, retreating to the line of support for a retest. In addition, the trendline along the ascending lows has now been touched. It is now for the market to tell us: will it break through this line tomorrow? Or will it bounce back upward and continue forward?
While standing in line at Starbucks yesterday morning I overheard the men in front of me talking about the stock market. "Oh," they said, "the market is overbought now; it can't go up any further." I asked, "Are you traders?" They said, "No, nothing like it." Once again we have cab drivers talking as experts about the market. Which reminds me that I want to take a look at the chart of Starbucks. But, don't forget that we are looking at a complex problem now. The definition of a bull market is one that has risen more than 20% from its low. This now qualifies, as the Dow is up 22% since the low. Yet, the longer range, overall picture doesn't look much like a bull market. I tend to think a bull market needs to recover from its lows and get back past its former high--it's a good thing I'm not the one making up the definitions.
Figure 3: E-Mini 15-min intraday
Once again, the E-Mini chart was virtually untradable on an intraday basis, unless you were scalping. My model has been short since yesterday morning, and now the RSI is in divergence with price, this time in positive divergence. To me that says that tomorrow will bring another upward day, wiping out any potential profits from the short play.
Figure 4: EuroDollar Daily - Sunday night commentary only
EuroDollar is
now beginning to show some reaction to the sell signal of a few weeks ago.
The formation looks like a rounded top now, with an impending down move.
Stay patient. Unless it goes up, it's going down.
I am now very cautiously watching the market for long plays. Since we tipped barely above the Yellow Box tops, I am alerted to potential continuing up moves. Nevertheless, I am still cautious about impending failures since the move above the yellow boxes was slight and could easily be retraced.
RULES OF THUMB:
1. When price is pushing the upper Sunny_Bands upward and then eases off and moves back toward the midline, it's time to take profits. If it starts moving up and pushing on the Sunny_Bands again, it's time to get back in. Likewise, if the market is pushing down on the lower Sunny_Band and eases off to move back to the midline, it's time to take profits from the short play.
2. Divergence of the RSI and price is another good time to take profits and wait for a breakout of price before taking a position.
3. When the exchange puts in curbs or trading halts on a large move down, it usually (not always) stops the downward motion. After the market reopens is a good time to take profits from your short position.
4. The market can't go nowhere forever. Eventually, who knows how long it will be, there will have to be a breakout-- one direction or the other.
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While it may be true that a picture is worth a thousand words, it is definitely not true that a picture deserves a thousand words.