The Sunny Side of the Street

FRIDAY EVENING - Jan 09, 2004
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Figure 1: Dow weekly

Today's session was another of those up and down days, with a gap down in the beginning of the day taking the QQQ exactly to yesterday's opening.  After that it was up for most of the day until the turnaround at 10:28aPT.  Eastern time, that would be the coming back from lunch time.  The carry over from that juncture was straight back down, almost to the level of yesterday's opening and today's gap.  The net result was a down day for the QQQ and the EMini both.

Figure 2: QQQ 1 minute intraday

This was what we expected from the last commentary, suggesting that the RSI was high enough and that a previous Attractor had been hit.  A bit of a pull back is all I am expecting, not something serious at this time.  I still expect the Dow weekly to hit the Attractor at 10687 before any serious correction occurs.

Figure 3: EMini 1 minute intraday

Today's EMini took a hit larger than the QQQ, though they were directionally similar.  The EMini's morning gap was larger than that on the QQQ, but the turn happened at the same time.  Differentiating again, the turn came at the same time, the resultant drop on the EMini was larger than that on the QQQ, ending the day lower than the opening gap down.

Figure 4: QQQ Daily

On the daily charts RSI is near the upper limits (recent, not all time) and so is price.  There are Attractors further back in time that will soon start acting as resistance, and in fact may already have.  Two days ago I told you I had taken off my long position because I felt we had reached a minor high and I was going to wait for a pull back into the midrange Sunny_Bands.  That is exactly what has happened and I am still waiting for the right signs to get back in.

Figure 5: EMini Daily

The EMini is pulling back the same way as the QQQ, but it's pulling back a little more, in fact.  Watch the Sunny_Bands for your next clues.

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.