The Sunny Side of the Street

TUESDAY EVENING - Nov 11, 2003
Archives of Past Commentaries  .  How Did We Do?

$66,989 in Stock Picks to date!  Click Here to view.

Today was a beautiful day, touching first the midline of the Sunny_Bands (nearly) and then climbing steadily all day long.  Of course, we did experience some stairstepping, as is normal, but the net for the day was a nice 14 point move upward on the EMini and an 82cent move on the QQQ.

The market started out in the up direction and only dipped below the lower band slightly 3 times.  Sometimes I get out immediately when that happens, and then get back in when price starts going back upward; but, generally when I see a close below the lower band I will put a stop below the low of that bar to get me out.  That way, if the market continues in the downward direction I'm out, but if it turns (like it did several times today) then I haven't gotten whipsawed.

 
Figure 2: ES 1 minute

Figure 3: QQQ 1 minute

The QQQ and the ES followed the same pattern right along today (see Figures 2 & 3) with the QQQ pausing momentarily at each of the Attractors I had previously marked.  See Figure 3. 

What are Attractors, I hear some of you saying?  Simply put, an Attractor is a line of support and resistance.  I call it an Attractor because it tends to attract prices like a magnet from both sides.  When price is above the line it tends to fall back to the line, and when price is below the line, it tends to rise to meet the line.  How do I draw them?  With TradeStation it is easy.  I simply use the horizontal line tool and drop a line where there has been previous congestion showing both a low and a high touching the same area from opposite sides.  It's amazing how the line gets hit over and over again in the future.  Of course, technically it is just buyers and sellers testing previous price points, but I like to view them as magnets.

Figure 4: QQQ Daily

My concern for the near future is that the RSI on the daily charts is now showing divergence with price.  Price is going up, RSI is going down.  That so often is indicative of a direction change impending, that I am still looking for a correction back to the lower Sunny_Band.  So, keep watch.  Go with the long play as long as it is working, but be ready to get short if the intraday closing prices go below the lower Sunny_Band.

Right now the lower Sunny_Band on the QQQ is at 35.73 on the 1 minute chart and the EMini shows a lower band of 1056.32 on the 1 minute chart.  Of course, these numbers change minute by minute, but for now that's the line to be wary of.

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.