The Sunny Side of the Street

TUESDAY EVENING - Dec 16, 2003
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Figure 1: Dow weekly

"Tomorrow, we are likely to see some more sliding and sideways movement as the market determines how to react to today's action."  That's what I said in last night's commentary.  And today, that's pretty much what happened.

The weekly Dow is now beginning to look like an Island Top, and that would call for a correction to the downside in the coming weeks.  I don't think the sideways 4-wave is in yet.  The one-wave and 2-wave were well defined and sharp.  And they took some time to develop.  That makes me think that this current action is an extension of the 3-wave and not a 4-wave correction.  It could just be that 10000 was such a strong pull that the market "had to" go there before it could correct.

RSI on the weekly chart is still higher than it has been for more than 3 years, but it could still climb further, into a full fledged bull market, ruling out any near term correction.  We'll wait and see.

Figure 2: QQQ 1 minute intraday

The QQQ and EMini weren't exactly in lock step today, with the EMini out running the QQQ to the upside.

Figure 3: EMini 1 minute intraday

The QQQ behaved more as I thought the market would behave today, putting in some slipping and sliding sideways. On both charts you can see that price was back and forth across the Sunny_Bands all day, and thus too volatile to really do much trading.  The best move for today was to stay with the short from yesterday.  Again, I think there is some more correction coming.

Figure 4: QQQ Daily

On the daily charts you can see that today's bar really looks more like a down bar than an upbar.  Even though, in reality it was an up bar, more progress was made on the downside, digging a deeper hole once again.

Figure 5: EMini Daily

The other formation that appears on the EMini daily chart is a potential head and shoulders in the making.  Yesterday's high would make for a good head if the other shoulder continues to build.  That too would call for more movement on the downside.

One more little observation: the RSI on the daily chart has put in a little divergence, which also would say that there is more room on the downside for this market in the near future.

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.