The Sunny Side of the Street

SUNDAY EVENING - Sept 7, 2003
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Figure 1a: COMPARISON: DOW vs SPY vs NASDAQ (Intraday)

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The breakout correction I have been talking about for several days is now in progress.  On Friday the low for the day went right to the Attractor at 9460, which was the high from 3 days earlier, and the same high from 10 days earlier, which gave it good support.  The next similar support level is at 9335 on the daily chart, which provides lots of support and should prove very difficult to break through.

The Dow closed on Friday at 9503, down about 86 points on the day.  The Average True Range is currently at 97 points, so Friday was pretty much an average kind of day.

On the daily chart, the QQQ is performing nicely, though it made a slight correction with Friday's bar.  Price is still riding the top Sunny_Band tightly, showing strength and still has not gone above the band into oversold territory.

More than likely, however, would be the scenario where the QQQ fell down to retest previous resistance, which is now support, at the 33.32 level.  But, we can't rule out the possibility of continued strong movement upward without a correction.  The only way to play this one is with stops.

Let's read the stops from the intraday chart.

Figure 2b: QQQ 15-minute Intraday

The system signal was late on the breakdown, but reading the Sunny_Bands got us in much earlier.  As the QQQ hit the Attractor overhead at 34.22 and did not break through, we knew that a reflection off and downward was imminent.  And whadda you know, it reflected right back down to the lower Attractor at 33.66, which was the perfect place to take short-term profits.  Price on the 15-minute QQQs is now in the bottom half of the Sunny_Bands, showing weakness and potential for more short-term downside action.

Breakout points on the QQQ are: 34.22 on the upside and 33.66 on the downside.  There is still no reason to trade a sideways shuffle--wait for a breakout one direction or the other.

The downside action on the EMinis on Friday was more like what I have been anticipating in my commentaries of the past few days.  It still wasn't much off the sideways path, however, and could have quite a bit more to go.  The Attractor just below current prices is at 1011, and price closed on Friday at 1022.  That would give 11 points to the downside.

The breakouts for Monday would be at: 1018.26 on the lower side and 1025.92 on the upper side.  Without a breakout there's no reason to trade during this sideways period.  Keep on your toes and watch for these two levels to be broken.

The reason I hesitate, and still say it is essentially sideways is because now the RSI is hovering down in the neutral zone having just passed up above 40 from beneath.  That's a positive sign and probably offers some magnetism to pull the market up.  With the current ATR at 2.55, it could take a sharp move or several days for the EMini to make it down to the 1011 range, and in the current bullish arena, somehow I don't think that's going to happen right away.

This commentary is meant only for EDUCATIONAL PURPOSES. It is to help you see how a Technical Analyst reads the signs in the markets. 

Stay sharp and on your toes.  Moves can reverse on a dime, anytime.  Let the market speak to you.  If the market is going down, by golly ignore my commentary from the night before and know that the market is going down.

RULES OF THUMB:

0.  I keep the chart in Figure 1a on each day's commentary simply to illustrate how much in tandem the 4 indexes I watch actually are.  For this reason, I don't always comment on every index.  Analysis of one speaks highly for the same analysis for each of the other indexes.

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.

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.