The Sunny Side of the Street

MONDAY EVENING - Dec 15, 2003
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Figure 1: Dow weekly

Well, the "news alone" did punch up the markets this morning, but not in such a way that you could get hold of it, unless you were already long from the day before.  The best exit would have been an immediate one, leaving the gap behind, just as it left you.  From there on out, the market went steadily downward today, drifting and dropping along the way.

On the weekly chart of the Dow in Figure 1 you can see that the Dow touched well out of the 10,000 barrier today, going as high intraday as 10139.  But, the close was back toward the "downside" so with the weekly RSI being higher than it has been in 3 years, I don't trust the move yet, long term.

I still think we are in a very precarious area from which we could take a sideways to down move any time.

Figure 2: QQQ 1 minute intraday

The QQQ and the EMini were in lock step today, again, making their highs for the day on the open, then drifting steadily downward from there.  The only play for the day was to be short from the beginning of the day onward.  How would you know that?  Two ways, one from the Sunny_Bands: the prices held pretty firmly below the midlines and, two, from the Attractors I had in place for days on the chart in Figure 2.  When the opening gap failed (by that I mean it did not make a higher high within the next few minutes), we knew that negativity was in the works.  Price (Figure 2) dropped below the first Attractor (QQQ 35.75, EMini 1079.50) and then tested it from the underside, unsuccessfully.  Then price dropped below the next Attractor (QQQ 35.57, EMini 1075.75) and tested it from underneath, again failing.  And, guess where price stopped and took a little bounce at the end of the day?  At Attractor QQQ 34.70. 

Everything comes back to testing previous price points.  If the market has had trouble there before, it probably will again.

Figure 3: EMini 1 minute intraday

Figure 4: QQQ Daily

On the Daily chart, same thing.  The QQQ in Figure 4 opened on the gap right up to the top Sunny_Band and almost to the Attractor I had drawn at 36.10.  That was a sure thing for failure when it didn't go beyond to 36.10 resistance area.

Figure 5: EMini Daily

And where did the markets slide to and bounce?  Right to the midline Sunny_Band in Figure 4.

Tomorrow, we are likely to see some more sliding and sideways movement as the market determines how to react to today's action.  The surprises have been to the upside of late, with the market correcting whatever it did in the morning, by afternoon.  What is left after the gyrating and correcting is an untradable intraday market. I expect some more trials around the 10,000 area, but not necessarily by tomorrow.

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.