The Sunny Side of the Street

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

MONDAY EVENING - Dec 01, 2003
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It keeps on creeping upward.  Today, near the first top, I took my positions off.  My reasoning went like this: we are very near lots of top markers.  On the Dow (Figure 1) price is touching the downsloping trendline, and is above the horizontal Attractor at Dow 9748. 

Figure 1: Dow weekly

On the QQQ daily, Figure 2, price touched the top Sunny_Band and the bands are pretty much horizontal.  The long trade I was in lasted 5 days and exceeded the ATR for a 5-day period.  The RSI is nearing the 65 line and I'm skeptical at this point. And, the horizontal Attractor at QQQ 36.10 was nearly met today.  That was enough reason for me to take profits and stand aside until I see what tomorrow brings.  If price keeps moving upward tomorrow and moves above the 36.10 line, then I'll go back in long.  Otherwise, all current objectives have been met and I'm not willing to give back the current profit.

Figure 2: QQQ Daily

Figure 3: ES Daily

The EMini skirted on above its targets today, moving out and taking the lead.  That piece of data makes me on the alert for tomorrow's action, thinking there might be more to the upside, but I'm not going to get greedy at this point.  It is time to wait and see what will happen tomorrow before making any more moves.

The Dow is nearing the 10,000 mark again, which could cause all kinds of excitement if price goes out and above the mark.  And, on the other hand, that same level could be heavy resistance.  If I do any trading tomorrow it is likely to be just scalping as I wait to see how the markets react to the current Attractors.

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.