The Sunny Side of the Street

WEDNESDAY EVENING - Nov 19, 2003
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"A little more room on the downside" was just about right.  The markets have touched their Attractors, have banged up against the lower Sunny_Band and today took the anticipated bounce!  Fantastic!  I love it when it's predictable.

Figure 2: ES 1 minute

As I said last time, the down move on the QQQ and INDU (yesterday) would probably put the EMini a bit out of synch -- and it did; the EMini is now just a bit below the trendline that I had on the charts.  That's good.

Then today both the ES and the QQQ took the expected bounce, moving nicely upward, through the Attractor in the case of the ES, and settled right on the Attractor.

That was a great show of strength for both, letting us know that the bull is still kicking.  That little correction put things back into order so that now we have room to move further to the upside for about 10 trading days.  Get ready.

Figure 3: QQQ 1 minute

Figure 4: QQQ Daily

The RSI on the daily chart is back down to the bottom of the bullish range (per Connie Brown's work) both in Figure 4 and Figure 1, taking the pressure off from the divergence and putting us in a place from which we can now logically make a rise.

The intraday QQQ landed perfectly on the 33.90 line that I had drawn several weeks ago and the EMini went right through the 1040 line stopping at 1041.  I'd say that's pretty darn accurate.

Now it is time for a bounce to form in a nice rounded 10 day "tent", to exceed the recent highs.  On the EMini we should see the 1060 level touched, if only briefly, and on the QQQ we should see the 36.10 level hit, with the same caveat.

In case I'm wrong, here's how we will know.  If the QQQ dips below 33.51, all bets are off, and shorts are in order.  If the EMini dips below 1025.41, same thing.  So, keep hold of your hats, play your cards close to your chest and hang on tight.

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.