The Sunny Side of the Street

SUNDAY EVENING - Oct 19, 2003
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In case you are not aware of the wealth of information available to you as a Money Member user, look over to the right and click on "Reference" and when you get there, click on "Candlesticks".  You should find lots of pictures of common candlestick patterns and their interpretations.  I have gleaned these from the works of others, cleaned up the definitions and pictures and represented them here as part of the Money Mentor glossary.  We also have a pretty complete and always building glossary, but the master book is for sale just for the cost of making a copy, at $79.95.

The Shooting Star pattern is generally a bearish reversal pattern. It occurs in an upper trend which indicates that the market opens at the lows of the season, rallies and pulls back to the bottom.

Recognition Criteria:

So, strictly speaking, this doesn't quite fit the definition.  But, as a pragmatic and seasoned Techncial Analyst, I am looking for patterns that are "good enough" and not perfect.  And, to me it looks pretty much like a Shooting Star.  On the weekly chart, the market has been going up, and up, and up.  Thirty-eight percent worth, to be exact.  It is still well above the Sunny_Bands, and the RSI is now at 52, turning back up from a low bounce off of 27.  That means it ventured into bearish territory, even if shortly, on or about the 30th of September.  When things are really bullish, the RSI doesn't get that low, it simply stays above the 40 level.  (Ref Constance Brown.)

Nevertheless, price is still above the horizontal line of the neckline, and made the turnaround right at the conjunction of the previous long trend and the new short-term down trend.  That speaks highly for resumption of the bullish move.  That's pretty exciting.  We have a bearish reversal setup with new highs popping up all over the place. 

These days, when I have a set up like the one described above, I'm just picking entries and holding on until it has moved up one Average True Range. Then  take the profits and find another setup.

Let's conclude then that since the Shooting Stare is a reversal pattern and the current short-term trend is up, that there is a short-term reversal in the making.

Where will it go?  Most likely to the horizontal line at 951 on the SPX.  It's only a short hop to that level, but would satisfy the requirements, would take the pressure off the steaming kettle and would give us room to come back at rip-roaring speed.

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)

Shooting Star: A candlestick pattern discussed further under Reference, Candlesticks.

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.

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.