The Sunny Side of the Street

THURSDAY EVENING - Dec 11, 2003
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The first close above 10,000 on the Dow in 80 weeks and the pundits are screaming the market is at new highs on Retail Sales, and going up.  Well, the market has been going up since October last year, and they're just now noticing.  The fact is, the market is now up against heavy resistance and will need some real show of strength to stay above the 10,000 mark.  Last time

Figure 1: Dow weekly

 the market was above 10,000 it spent "forever" playing sideways between 10,000 and 11,000 and was a wild ride of volatility in the process.  Personally, I am not expecting a wild jump up above 10,000 by much right now, but rather still see some more time in the sideways arena.

Figure 2: ES Daily

On the chart in Figure 2 you can see that the EMini bounced today off the upsloping trendline moving up, but not far past the moves of the last week.  The cycle could be through with the downside for now and the market could continue moving on upward, but I just don't think it will be carried wildly up like in the ole days just yet.  I am still expecting some more sideways motion.

Figure 3: EMini 1 minute intraday

Today's activity followed the pattern that we have been seeing day after day:  movement in the morning, flat for the mid-day, and movement again in the afternoon.  The flatness today centered right around the Attractor I had drawn at 1065.  That would have been a good time for intraday players to take profits and wait to see what the afternoon movement would bring.  So often in the near past, the afternoon movement would negate the morning's movement, so it is best to watch for a breakout rather than a uni-directional day.

Figure 4: Daily QQQ

The QQQ is not as positive about this motion as the Dow is.  You can see in Figure 4 that the QQQ is still in a sideways channel, with the RSI poised for further upward movement.

This area in the movement of the markets is a very important Technical juncture.  Whether or not the Dow continues beyond the 10,000 level is a very critical piece of the puzzle.

I am still skittish about going long just now, until the market shows more definitive signs of a breakout.

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.