The Sunny Side of the Street

TECHNICAL ANALYSIS EDUCATION: EXPLAINED AND DECIPHERED FOR NEW AND VETERAN TECHNICAL ANALYSTS ALIKE.
 

THURSDAY EVENING - Dec 18, 2003
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Figure 1: Dow weekly

Up, up and away!  The EMini and Dow today took off like a helium balloon, setting new short-term highs.  We haven't seen this level on the Dow since May of '02 (as it was on the way down).  I guess I have to capitulate as the markets seem to keep moving up, despite my cautions about sideways corrections.  I still think the market will pause for the sideways correction, but as long as it is going up, it is going up.  So, for those who are nimble and cautious, it looks like time to reenter the long play, until the market shows us otherwise.

Figure 2: QQQ 1 minute intraday

The QQQ and the EMini were back in harmony again today, with the QQQ being the more volatile partner.  When they broke out away from their Attractors, they took off.

Figure 3: EMini 1 minute intraday

The thing that still has me concerned, however, is that the QQQ on the daily chart, has still not made new highs, but is lingering behind the EMini.  That tells me that the small caps still aren't doing well, and the rally is being led by the Dow and the S&P large cap stocks.  That doesn't bode well for the long-term, unless the QQQ somehow suddenly catches up.

Figure 4: QQQ Daily

Yes, it was a good day for the QQQ, it was a nice upward day, but if you will look at Figure 4 you will see that the QQQ is still caught in a sideways channel.  Tomorrow will probably bring some short covering and another rally before the weekend.  No one wants to be left holding shorts over the weekend.

Figure 5: EMini Daily

The EMini made the most headway today of the three markets I watch.  The next Attractor above the current level is at 1103, which is where I expect the market will head next.  Expect some hesitation when the EMini reaches the 1103 area.

In the meantime, keep your eye on the RSI.  The weekly values are the highest we have seen in years and the daily values are the highest they have been in about 6 months.  That either calls for an extended bull run, taking the RSI on up to the 75 level, or it calls for a correction in the making.  Of course, we have no crystal ball, and there's no way to tell which will come first.  But, as long as price is above the midline Sunny_Band, it calls for long plays in the market.

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.

Vehicles:  Trading symbols.  IBM is an equity vehicle; SPU03 is the SP futures contract that expires in Sept of 2003; @ES.D is the EMini; mutual funds are vehicles; gold is a trading vehicle; etc.

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.

5.  This commentary is for educational purposes only, and is meant only to teach readers about my indicators, other technical indicators, and how I read them.

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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.