The Sunny Side of the Street

TUESDAY EVENING - Dec 09, 2003
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As I suspected in yesterday's commentary, the overhead resistance turned back the markets today, resulting in a nice short day, whose True Range was significantly larger than the ATR of the recent past.

Figure 1: QQQ Weekly

On the intraday chart, in Figure 2, you can see that the slope of the downtrend today exceeded the slopes of most days in the recent past.  By that I mean that the move down was sharper than either previous moves down, or previous moves upward.

During the middle of the day the market hesitated around the 34.85 area, giving the suggestion of a potential turn-around, but it just turned out to be a sideways hesitation with lower tops on each succeeding little rally.  That descending triangle pattern was true to form and culminated in a continuation of the previous direction, and the market went on down.

Figure 2: QQQ 1 minute intraday

Figure 3: EMini 1 minute intraday

Again, true to the patterns of the past couple of years, the EMini (Figure 3) exhibited generally the same pattern as the QQQ.  The midday hesitation on the EMini was at the 1065 level, and the moves in the EMini were a little bit sharper than on the QQQ.  Interestingly, today the QQQ seemed to slightly lead the EMini, if only by a matter of seconds.

The Sunny_Bands did a great job today of highlighting the moves, with the short trades staying nicely under the midline, until the bands went sideways and so did the market.  When the second breakdown came, again prices stayed under the midline making for two nice short trades for intraday players.

Figure 4: Daily EMini

On the daily chart of the EMini, in Figure 4, you can clearly see how the horizontal line of resistance at 1071 has turned back the upward climb, and the downward correction is headed for the upsloping trendline.  If the correction behaves as the small cycles have over the past several months, the move will drop beyond the trendline, and maybe even as low as the lower horizontal support at 1040, before bouncing.  The corresponding level on the QQQs is at 33.00.

RSI on the daily chart in Figure 4 has been steadily showing lower highs as the market was showing higher highs, therefore putting the two in divergence.  That's not a good sign.  RSI is currently pointing back down from the 65 line, telling me that we are possibly even looking at a larger correction than the 33 and 1040 just mentioned.  Stay on the lookout for that contingency as well, watching what your RSI is doing at the same time. 

Remember that a few issues back I said to expect a sideways 4 wave correction.  That's what I really think is happening here.  I expect the correction to be shallow followed by another up and then down move after that, each time hesitating at the 1071 (36 on the QQQ) level.

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.