The Sunny Side of the Street

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

MONDAY EVENING - Nov 17, 2003
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Wow!  Today's move down just touched the trendline in Figure 1, the one I was talking about last night.  And, price dropped right through the 1040 line and bounced back up through it.  See Figure 2.

Figure 2: ES 1 minute

If you examine the activity of today on the 1 minute chart above you can see that most of what went on was the testing of the 1040 line.  Price initially dropped to the line, then climbed above it slightly, then dropped back beneath the line, then came back to touch the line, then fell again and came back to touch the line.  At the end of the day, price climbed up through the 1040 line and closed at 1043.  That's a pretty solid Attractor by my estimation.

I'm thinking the next move will be upward tomorrow, with a bounce off the trendline.  If the market continues on downward, then it will break the trendline and drop quite a bit further, so I'm hoping that's not what is ahead.  The cycle length is just about the right length to start another leg upward now, and the Attractors have been met.

One thing that still looms negative is the picture of the QQQ.  It didn't quite touch the Sunny_Band today, so the pressure is not yet all exhausted.

Figure 3: QQQ Daily

Nor did it touch the horizontal line I've had drawn at 33.90.  That means there could be some more downward pressure tomorrow on the QQQ, which would carry over into the ES.  The ES could respond with sideways movement more than downward pressure and let the QQQ finish its leg down.  That sounds like a logical conclusion to the conflict, even though it would put the two indexes out of synch just a little bit tomorrow.

Figure 4: INDU Daily

The Dow is once again doing the same thing as the QQQ, and has not quite touched the lower Sunny_Band.  So, that says to me there is still a little room on the downside.  Probably we will see a two movement day again tomorrow, with one leg down and one leg up.  That would clear out the pressures and still give a minimum move on the daily chart.

Figure 5: Eurodollar daily

The ED is still holding its own in the same sell signal it has been in for weeks.  It is still under the Sunny_Bands midline, and that's that.  Currencies take a long time in a single trend.

Figure 6: US T_Bonds Daily

US Bonds continue on the same buy signal, although it has definitely been a choppy ride!  Of course, the quick of mind and slight of hand among us would have taken profits every time prices hit the top Sunny_Band and broke back through again.  Still, as long as bonds are moving up, interest rates are moving down and I think that's a good thing.

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.

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.