The Sunny Side of the Street

SUNDAY EVENING - Nov 30, 2003
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Still on the rise.  Day by day, inch by inch, the markets get just a little farther along.  While others a predicting (see other newsletter opinion) doom and gloom with mutual fund fiascos and further market declines, I seem to be standing alone on the other side of the crowd, holding up my Bullish flag.

On the weekly chart of the EMini (below; Figure 1) I clearly see the one-wave, the deep corrective two-wave and the current 3-wave.  It is just that I don't think the 3-wave is over yet that keeps me bullish.  Sure, I agree that we are in for a correction, probably in the near future, but I think it will be a sideways, drawn out 4-wave that won't go further down than the bottom we saw on 9/21/2001 or the tops that were created on 8/23/2002 and 12/6/2002.  But, because this 3-wave has been long and strong, I really don't believe the markets will correct as low as those markers.  For those of you without other charting programs, the levels I'm talking about are at about 953 on the EMini.

We are nearly at the top of the range at 1076, which I have been talking about for months now.  Readers of the Sunny Side of the Street have been long-term long players since the breakout of the 2 wave and are holding, though cautiously, for the next 20 points or so.

Figure 1: Weekly EMini

Figure 2: Daily EMini

On the daily chart you can see that price is still nicely following the upsloping trendline, but has yet to breakout from the 1058 pennant top sufficiently to cause a new buy signal.  Because it has not yet broken out, is currently acting as resistance and could become significant if the market doesn't hurry up and get over that resistance line.

Friday's short day was thinly traded, as most folks were out on the Thanksgiving holiday, giving a bit of a false reading on the technicals.

Figure 3: 1 minute QQQ intraday

Even the Sunny_Bands got confused and narrowed falsely at the end of the day.  I am ignoring that activity as holiday noise and still holding long on the daily chart information.

Figure 4: Daily QQQ

Friday's narrow day shows up clearly on the chart in Figure 4, sort of stuck in the middle between the two bands.  I am still looking for the market to move on up to the upper band and hopefully break through.  RSI on the daily chart is also middle of the road.  That gives plenty of room for the market to move higher and touch or exceed the 65 line.

If you are a news junkie and believe in fundamentals affecting the markets, then watch for retail sales to do well through the Christmas shopping season, and take the market up along with 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.