The Sunny Side of the Street

MONDAY EVENING - Nov 10, 2003
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Today was a slow drip down.  The market paused at the Attractor of 35.36 for most of the day, after the initial drop in the morning.  It was only at 12:25 that the market actually began to drop again.  But, even then the drop from the Attractor to the close was only 15cents. Comparing this chart with historical charts of the same market, it almost looks like a sideways day again.

Figure 2: QQQ Daily

On the daily chart, the low of the day did touch the midline Sunny_Band.  That may become big news.  As I've said, we could be looking for a correction to the 33.90 level, and the touching of the midline could be the first indication that a drop is imminent.  It's too soon to know whether shorts are in order on the daily chart, but it is not too soon to be on the sidelines.

In reading the Sunny_Bands, there are several options that could play out at this juncture.  First, price could take a bounce off the midline and go back up.  If we have a close above the upper band, that's a good time to get long again.  Secondly, price could continue on downward and touch the bottom line.  A close below the bottom line would be a time to get short.  Thirdly, price could close below the midline but never go on down to the bottom line, in effect taking a bounce back up again.  Watch carefully for these scenarios, being ready to react as appropriate.

Figure 4: Emini daily

As with the QQQ, the EMini also touched the midline today, giving us the same readings and the same cautions.  Note on the chart that in addition to touching the midline, prices have formed a small pennant.  This is usually a sign of a big move to come.  Generally after a congested period the market breaks out.  We can't say which direction, as one is as likely as the other, but we can have stops in place both over and under the pennant, ready to take either side of the move. 

Again, I am looking for a pullback to test 1040, which was begun with today's action, and then a bounce to the 1081 area.  Don't forget that this market likes to churn a bit, so expect for the market to do its best to confuse you with trials of the 1040 line over and over again.

Note that on the daily chart, the ATR is getting more and more narrow each day that passes. To me that says that the market has to come to a breakout in the near future, giving rise to some expansion in the ATR.  It can't just go flat forever, can it?

Keep your senses about you and use strict discipline in trading.  Trading is a risky business.
 

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.