The Sunny Side of the Street

SUNDAY EVENING - Dec 14, 2003
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The Dow closed even higher above 10,000 on Friday, and on Saturday Saddam Hussein was caught.  The news alone should project the market on upward on Monday morning. 

Figure 1: Dow weekly

The Dow and the EMini have now closed above the resistance I have been watching, so if the markets confirm with further up movement on Monday morning it looks like a good time to get long again.

Figure 2: ES Daily

On Friday's intraday charts, the QQQ and the EMini were in divergence for the first time in eons.  Yes, it was only slight divergence, but it was there nevertheless.

So, while the Dow and the EMini have broken into new recent highs, the QQQ has yet to do so.  This is a bit worrisome to me, and makes me hesitant about getting overly exuberant just yet, but still I'm watching for confirmation.

Figure 3: EMini 1 minute intraday

Also, in Figure 4, you can see that the RSI on the QQQ has not recovered to the 65 level, as the EMini and Dow have.  That's another worrisome situation. 

The markets bounced off the midline of the Sunny_Bands soundly, giving rise to the nice upward motion, and that is encouraging for long players.

Figure 4: Daily QQQ

Quite possibly it is time for the daily QQQ to play catchup with the other two markets and would be a nice ride up at least to the resistance at 36.10.  As long as the markets stay on the top side of the Sunny_Bands, there is safety in numbers.  It does look like the small cycle we have been watching has completed and there is more room for rising toward the top.

Figure 5: QQQ 01 minute intraday

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.