The Sunny Side of the Street

WEDNESDAY EVENING - Jan 21, 2004
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Figure 1: Dow weekly

The Dow is fast approaching the overhead resistance at 10687.  I expect a lot of congestion when we hit that level.  The congestion at that level should oscillate back and forth between there and 9748.  That should provide a nice thousand point channel for traders for a while.

If the Dow flies through that level without pausing for the congestion that refreshes, then the next level to aim for is a the top of tops, which we saw at 11750 on Jan 2000.

Figure 2: QQQ 1 minute intraday

Today's intraday char open with a small gap down, and continued on down for about an hour.  The turn-around came at 7:47PT and the market climbed slowly from there, until a spike upward that started at 11:15 by breaking the opening gap.  It was short-lived, however, as it reversed when it reached yesterday's closing area and headed back down again.  All in all, it left the QQQ's down on the day.

Figure 3: QQQ Daily

The daily RSI, in figure 4, is showing red, indicating it lies above the 65 line, which is the beginning of the bullish overbought level.  That could be a good, hopeful stay for the future run of the market, or it could be foreboding in that that's about as high as it will go for the short-term.  Last time we saw this same occurrence it turned out to be a sideways move for several weeks.  I believe we are now in that sideways period, even though it looks like we are moving downward slightly.  The Attractor at 37.41 seems to be the center of activity for the QQQs right now.  As I said previously, I have taken off my long position basis the daily charts and am waiting for more information.  The downward movements haven't been challenging enough to penetrate low enough to make me want to go short yet.  Watch the lower Sunny_Band, where the challenge lies.  If that gets penetrated, then I'll be interested in shorting.

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.