The Sunny Side of the Street

SUNDAY EVENING - Sept 28, 2003
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LAST TIME I SAID "Tomorrow the Attractor at 9325 will exert more downward pressure on the market, with the longer range Attractor being down at the 9000 level."  And indeed, the Dow's low was at 9303, being pulled down by both Attractors.  It's beginning to look like we will at least go down to the Attractor at 8948, if not a bit lower, taking the pressure off of the recent lengthy up trend.  After letting off this steam, we can healthily resume the uptrend.

RSI on the daily chart has not broken below the 40 level, so I may be wrong about the correction.  The market could be bullish enough to get to the 40 level on the RSI and turn back around from there showing great strength.  If so, 10605 look out!

Figure 1c: Dow Industrials Daily Basis

Figure 1d: Dow Industrials 15-minute Basis

Attractor:  a level to which prices seem to be drawn, like a magnet.  Usually these are lines of support or resistance from previous highs and lows, but can also be an important level on an indicator, or the edge of a Sunny_Band.

RSI:  Relative Strength Index (TradeStation function)

SDMA:  Sunny's Dynamic Moving Average (proprietary)

Today's downward reaction took the daily bars, not only into the lower half of the Sunny_Bands, but all the way down to touching the lower band.  In the past months this has usually called for a bounce in the near future, bouncing off the lower band and back up the the upper band, followed by a drop to the lower band and back and forth ad infinitum.  Somehow I don't think this will be the case this time.  I think we now need to build a base on this lower band before moving back upward.  That would translate to taking some time to fiddle back and forth in a narrow range establishing some strength in this area.

 
Figure 2b: QQQ 15-minute Intraday

LAST TIME I SAID: "The likelihood is for tomorrow to finish the drop to 32.50, and take a bounce upward from there, probably giving us another sideways day to suffer through."  The QQQ actually dropped to a low of 32.76, and that was at the end of the day.  So it didn't give a chance for the waffling sideways motion I was expecting after the drop.  Maybe the sideways action is being reserved for Monday.

The next Attractor downward is at 31.87, but I expect to waffling and testing before the next drop comes about.  The 31.87 mark is a pretty strong Attractor and is about half of the move up since March, so it should hold.  But of course, we'll see.

The weekly scenario is still in long configuration, so until told otherwise, we are basically either looking for long trades, or for countertrend trades against the major trend.  On the weekly chart the ES just fell to the midline, which does not yet put it in bearish territory.

Today's EMini didn't make much headway past the 997 Attractor, playing around that area for most of the day, resulting in the mostly sideways day I anticipated.  Basically it headed for the lower band and just stayed there.

After the low today near 997, what's next?  The next lower Attractor lies at 989, and the next upper Attractor would be to bounce back up to 1004.  The table below shows the major Attractors that lie out beyond that.

Often the market will have a cascading follow-through on a day with a sharp down period like today, but lately it hasn't been the case.  In this funny sideways dance the markets are now doing, a sharp downdraft is often followed by a bounce back up, and then another move down.

So, I'll be looking for shorts if it breaks below 994 and longs if it bounces off 997 and starts up.  Keep in mind that the ATR is about 12 points, so don't expect more than that.

The US rose again today, now safely above the Attractor at 107.97.  This should be great news for the stock market, but the stubborn equities are fighting the norms and falling in the face of falling interest rates.  What does this mean?  Deflation?  Worsening economy on the horizon?  Or just the California election fiasco?  It doesn't matter.  What is, is.  The "what is true" is that the bonds prices are rising and must be played that way.  They're running for the attractor up at 112.80

I use the Sunny_Bands to exit when price once again touches the midline, and hopefully there will be plenty of profit built up in the model before it turns around.

Prices are above the upper half of the Sunny_Bands, which is very bullish.  RSI on the US is in the bullish range, but not overbought, so it looks like bonds have more to go on the upside.

Watch closely and be wary incase the breakout shows itself to be false.  Then if the profits begin to build, put a trailing stop under the ride up, 1.5 ATRs away from price.

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.