The Sunny Side of the Street

SUNDAY EVENING - Jan 25, 2004
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Figure 1: Dow weekly

Right again!  The Dow is falling back from the Attractor line I had drawn at 10687 now.  Today and yesterday both were evidence of this.  I have been talking for weeks about this being the line where I expected the markets to take a bit of a tumble and get into a congestion range.  And, today it seemed to be doing just that.

On the weekly chart of the Dow it looks like the high just touched the 10687 line, but in actuality it didn't quite make it to that level.  The actual high on my data is at 10660.  But that is certainly close enough for the congestion turnaround to begin. 

The RSI on the weekly chart is at near-term highs, stretching out beyond the bear market limits and into bull market highs.  Of course, we have been in a bull market since March 2003, with the market just about moving straight upward.  So, that should be no surprise.

It should also be no surprise if the market pauses for a congestive correction.  I am still anticipating a 1000 point channel to develop on the Dow to take off some of the steam that has built up over the past 9 months.

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

Another slightly down day, with plenty of intraday volatility.  First the QQQ went up to yesterday's gap, without closing it, and from there it came back down for all but the closing hour of the day.  That sort of action has been pretty typical for the market of late, with no solid direction for the day, but plenty of intraday choppiness.  But the net on the day is a follow through of yesterday's short signal, so we feel good about that.

Figure 3: QQQ Daily

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.

Figure 4: EMini 1 minute intraday

Today's EMini (as usual) had the same sort of intraday movement as the QQQ.  The EMini, however, did exceed yesterday's opening gap's low to meet up with yesterday's high and then struggle on downward from there.  Then in the closing hour, the market turned back up slightly, probably reflecting day traders closing their short positions for the weekend.

Figure 4: ES Daily

On the daily chart we see the same retracement occurring today as on the QQQ, with the probable springboard being the lines I called out in yesterday's commentary.

Restating:  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.