The Sunny Side of the Street

THURSDAY EVENING - Jan 22, 2004
Archives of Past Commentaries  .  How Did We Do?

$64,499 in Stock Picks to date!  Click Here to view.

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 to channel trade 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 chart opened with a small gap up, and swiftly reversed its direction, heading back down to the beginning of the opening gap.  For the remainder of the day the action was choppy, whipsaw movement, heading downward all the while.  All in all, it left the QQQ's down on the day.  There were really only two trades one could have taken to yield any profit: (a) the short right after the open, which led to a quick covering at about 8:20aPT, followed by (b) a long trade that could be held only until the gap from the open was partially covered.  When price backed off from the Sunny_Bands at 9:38 without going any further, it could have been just the hint you needed to discover that it wasn't going any further.

Figure 3: QQQ Daily

The real clue came today on the daily chart, where my tracking system gave a short signal, or for those who only trade from the long side, a signal to stand on the sidelines.  That signal was based on the price touching the midline of the Sunny_Band today.  That is a signal to me that what I have been saying for the past few weeks is coming to pass now.  It looks like prices are about to retest some lower Attractors, or at the very least get into a choppy sideways pattern.

This market has been so strong, for over a year now, that I am seeing only shallow retracements.  I am not looking for anything deep, at this point, or protracted, so I'm not going heavily short.  I'm just standing on the sidelines for the time being.

If price exceeds 38.85 on the QQQ, or 1149 on the EMini, that will be evidence to get back in on the long side.  If not, we could be looking for a downward movement to about 1128 on the EMini and 37.5 on the QQQ.

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.