The Sunny Side of the Street

TUESDAY EVENING - Dec 02, 2003
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The downsloping trendline, as I anticipated in yesterday's commentary, is giving the market a bit of the slip today.

Figure 1: QQQ 1 minute

Both the QQQ and the EMini slipped a little bit, as they backed off from the trendlines and the overhead resistance. You can see now why I was hesitant yesterday and decided to take my positions off near yesterday's highs.  As I said, until the market shows me that it is really going to move higher, I am going to wait on the sidelines for some proof.

Figure 2: ES 1minute

Looking at the weekly Dow again, it is easy to see that the downsloping trendline is still holding a heavy hand on the current market march, with the horizontal line holding the market up on the other hand.  So, there is still much congestion that can form around this current area before a direction is in place. As I said in previous commentary, there is the likelihood of the 4-wave forming in a sideways congestion pattern, since the 2-wave was sharply down, and today seems to be confirming that possibility.

Figure 3: Dow weekly

Still it is too early to tell from the little bit of information we got today.  Today's price action was only a small piece of the puzzle, and we will watch as the next week or two progresses before we know much about the current pattern. 

Figure 4: QQQ Daily

Unless--the market charges on upward, then we will have certain information about the market's direction and breakout.  But, I am not going to take action until the market calls out its intent loud and clear.

Figure 5: ES Daily

On the daily charts I can see a bit of room left on the upside in the cycle formation, but I am not willing to risk a long position on reading the cycles unless the breakout above 1071 on the EMini or 36.10 on the QQQ occurs.  If that happens first, then I take off the veil and go for the long trade.

I will be out of town on business over the weekend, so there will be no Friday or Sunday commentary this week.  Rely on what I have said in this commentary to be my technical analysis of the longer term daily outlook for that period.

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.