The Sunny Side of the Street

TECHNICAL ANALYSIS EDUCATION: EXPLAINED AND DECIPHERED FOR NEW AND VETERAN TECHNICAL ANALYSTS ALIKE.
 

MONDAY EVENING - Nov 03, 2003
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Today was a fine move up, after the gap, as long as you got out at the top.  But, once again, if viewed from another angle, it was just another sideways day.  It all depends on your view.

If you are a daily time-frame watcher, then your perspective is a bit different.  From the daily perspective, today looks like a reversal pattern, with this possibly being a top.  It would make a lot of technical sense for today to pan out as an island high or a sledgehammer/shooting star high.  But, as with too many technical tools, you can't tell until it's over.

On the daily charts, the markets have just recently passed into "new high" territory, with the highs still holding, and this is still a strong signal.  I wouldn't be surprised to see the markets dip back down to re-test the Attractors, so watch carefully as moves like today's continue to play out.

We have watched the markets make new highs and drop every day, ending in a slightly up (or down) to sideways day by the end of day, day after day for months now.  As I have said many times, the markets tend to do what they generally tend to do.  So, that type move over and again says to me that day traders are getting in early (or overnight) and getting out midday to take profits.

That sort of movement can be played on the daily charts well, but you would have to have gotten in before now, or can be played on the very short-term charts by watching the 5 and 15-minutes interaction with the Sunny_Bands.

As long as price stays above the middle line, I like to play the long side.  And, when price begins to fall below the midline, and dip into the arena of the lower line I like to play the short side (or if I'm watching a particular stock I like to get out of the long and stay on the sidelines.)

The proximate highs today were around the 1059 level before the drops started.  You can always seem to tell that the steam is running out when the ATR begins to diminish, and be happy for part of the day's run.

On the QQQs today it was a bit easier to read, as the Sunny_Bands captured the move nicely, all the way up today.  Those who like a bit of the risk, could still be long overnight from reading the bands today.  Those who are more risk averse could have taken profits when the prices started to pass through the Sunny_Bands midline at about 11:15a.  The greedy among us would have been neer-sayers when the market started back up again, but I think taking 40-50% of a day's move is fine! 

For tomorrow and in the near future, I think the markets will continue to attempt the move upward, though there will come a time when the re-test begins.  On the daily charts it still looks too good.  The economy is still trying to make its way back and the market is responding by trying to recover to old highs.  So, as I said, the markets will generally do what the markets generally do.

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.

Vehicles:  Trading symbols.  IBM is an equity vehicle; SPU03 is the SP futures contract that expires in Sept of 2003; @ES.D is the EMini; mutual funds are vehicles; gold is a trading vehicle; etc.

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.