The Sunny Side of the Street

MONDAY EVENING - Dec 08, 2003
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The rounding top showing on the weekly chart suggests more downside action in the markets, at least until the prices hit the midline Sunny_Band.

Figure 1: QQQ Weekly

That move should take the QQQ back down close to the 33.00 horizontal line before it is over.  Today's action on the intraday charts, however, belies the overriding longer term trend.  On the longer term chart (Figure 1 and Figure 4) the markets are right up against resistance and have not burst through.  Without such a burst of energy, we still have no reason to jump onto the "long" wagon, just yet.

Figure 2: QQQ 1minute

Figure 3: EMini 1 minute

Intraday the QQQ (Figure 2) was more violent than the EMini, with the QQQ heading decidedly downward in the morning, while the EMini headed sideways.

The updraft started happening about 10:28amPT, but was side swiped quickly thereafter as it dropped back down to previous support.  But, then the up move started from a bounce at 11:38amPT and the markets went up from there on. 

The Dow is now closely approaching the 10,000 mark where there will either be resistance or a decided breakthrough.  Watch carefully for either move.  That is probably the magic number which will decide whether the next few weeks will be up or down.  If the resistance holds, then we can look for the 33 mark on the QQQ to be the next target.  Watch the RSI carefully because it is currently showing a little bit of negative divergence which could pull downward over the next week or two.

Otherwise, RSI on the weekly Dow is at the 65 line, which has consistently turned back the markets over the past 3 years.  We could be in the new big bull run and go on up to the 80s (like in the good ole days), but be careful as the 4th wave is not yet complete.

Figure 4: INDU Weekly

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.