The Sunny Side of the Street
TECHNICAL ANALYSIS EDUCATION: EXPLAINED AND DECIPHERED FOR NEW AND
VETERAN TECHNICAL ANALYSTS ALIKE.
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As is often the case after a congested period, the market blasts out from its triangle, often continuing to climb. That was yesterday. But then the market stalls and begins a sideways go at it. That was today.
Figure 1a: One minute Dow
Where was the money today? The first trade was in the long hold from overnight. As the market topped for the day and began to fall back down through the Sunny_Bands, it was time to take profit from the long and wait to see what happens next.
Figure 1b: Weekly QQQ
The weekly chart, on a closing basis, is above the Sunny_Bands midline. Even stronger, it is touching the top band, if not a bit above it. Vote 1 is bullish.
Figure 1c: QQQ Daily
On the daily chart, the QQQ is well above the upper band, the SDMAhist is bullish and the RSI is still hanging in there at high levels. Vote 2 is bullish.
Figure 1d: QQQ 60 minute
On the 60 minute chart, price yesterday stayed above the middle Sunny_Band, and a pennant was formed calling for a buy on a stop at 34.96 or above. The market opened above that line this morning, calling for long entries. The idea is to only take these entries when price goes above the price on the first bar that qualified. At 7:51 on the 3 min chart price closed below the Sunny_Band midline, calling for an exit of that trade at 35.25. Next price confirmed another down draft at 9:54 and then closed within the bands at 10:39. Price then went sideways again until choosing a direction at 12:27 when closing above the bands. So, that's a long play into the close.
Figure 1e: QQQ 15 minute trading chart.
The QQQ model on my charts got me long yesterday morning at 645amPT, where I stayed for the rest of the day, doing nothing more than watching the market trade sideways all day. Thus, I came in this morning long into the large gap, and happy about it. As you can see on Figure 1e, both the model (arrow) and the penetration of the upper Sunny_Band called for me to get out of that position at 8:30a. At 1100amPT the model again calls for long positions with price at 35.09.
It looks like Long is the position for at least part of tomorrow as well. Of late, positions don't last for days and days, but rather seem to carry on only for part of a day. That's what I expect for tomorrow: a small amount of follow through on the long trade instigated this afternoon.
Figure 1f: Emini 15 min
In Figure 1f you can see how the EMini chart matches up to the entries & exits on the QQQ chart. It has been good going.
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.
PHW: Potential Hourly Wage. A term coined by Sunny to examine whether trading for a living is really worth it when compared to the minimum wage standard. Before considering a trading system to be a success, it should pass the PHW test.
RSI: Relative Strength Index (TradeStation function)
SDMA: Sunny's Dynamic Moving Average (proprietary)
SDMA_Hst: Sunny's Dynamic Moving Average presented in a histogram format where the line representing the difference between the two SDMA lines turns from red to green when the two SDMA lines cross each other (the difference is zero). The yellow line is an average of the histogram line.
Sunny_Band: Sunny's Dynamic Moving Average plus 1.5 ATR and minus 1.5 ATR, creating a band on either side of the SDMA.
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.
5. This commentary is for educational purposes only, and is meant only to teach readers about my indicators, other technical indicators, and how I read them.
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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.