The Sunny Side of the Street

WEDNESDAY EVENING - Dec 17, 2003
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Figure 1: Dow weekly

Yesterday I was expecting some more sideways to downside action on today's market.  That didn't happen on the EMini, but it did on the QQQ.  On today's QQQ it was about as sideways as a market could get.  See figure 2.  The magenta horizontal line goes from yesterday's close to today's close--pretty sideways to me.

Figure 2: QQQ 1 minute intraday

And yet on the EMini, figure 3, the market was sideways to down for most of the day, and then the upward recovery at the end of the day made it all in all an up day.  But, once again, on the daily charts, the markets are digging a downward hole, and ending the day up.  It's a very strange sort of activity.

Figure 3: EMini 1 minute intraday

In today's interview by Ike Iossif, he reminded me that 4 weeks ago (when everyone else was calling for a top) I said I thought that the market would keep on grinding its way upward.  And that's just what it did over the intervening 4 weeks.  This time I told him that I am expecting a sideways 4-wave correction over the next 4 weeks to 2 months and again he was surprised.  We shall see.

Figure 4: QQQ Daily

On the daily chart, the QQQ is turning in a lackluster performance with the daily RSI dripping down slowly toward bearish territory.  The QQQ itself stayed underneath the Sunny_Band midline today, still making a case for an island top or a future head and shoulders correction.

Figure 5: EMini Daily

But, in contrast, the EMini had a somewhat decent upward day, both intraday and on the daily chart.  The EMini is still following the upsloping trendline without breaking it again.  If this keeps up, the EMini will have to make significant progress in the near future, as it is currently caught between the upsloping trendline and overhead resistance at 1081.  To keep up the upward progress, the EMini needs to break through the 1081 level solidly.

For tomorrow, I am still looking for more of this uncatchable sideways action on the markets.  I expect both the QQQ and the EMini to reach down and touch the trendline.

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.