Wednesday, February 27, 2013

The daily chart has gone impulsively bullish with Monday's sharp thrust, suggesting happy days lie ahead for dollar longs. There's not much to grab hold of yet for the next leg higher, but as you can see in the chart, this vehicle has stalled at the p resistance of a lesser pattern. I'd suggest using a 'camo' entry strategy if you're eager to play, but you should wait for more backing and filling -- which is to say, for more point C-low stop-outs -- before you leap. There's a risk of missing the trade that way, but DXY looks too menacing right now to mount after so shallow a pullback.

Getting aboard yesterday's explosive rally proved so difficult that higher prices over the near-term would seem very likely. The intraday high capped a strongly impulsive A-B rally, which means the pullback currently under way should be bought. But how? My suggestion is to take the first signaled 'x' entry (see inset), but to do so with a 'timed' buy-stop that will take you out of the position if it doesn't perform quickly (i.e., with 30-60 seconds).  If too many bulls start to weigh this vehicle down and it sinks to a second point 'C', look for your camouflage buying opportunity on the 15-minute chart or less.

The Dow was up 116 points yesterday – all of them presumably gratuitous -- recouping about half of the previous day’s losses.  This was in odd contrast to an S&P 500 index that barely got off the launching pad  Take a look at the 60-minute chart below if you want to see how S&P buyers spent the day head-butting their way modestly higher. Our guess is that they were outmatched by fresh supply coaxed forth by Monday’s semi-fearsome selloff. Recall that it was attributed by the news media to worries about Italy’s election results. Are the rabble about to seize power in Rome?  It would seem not. Italy didn’t even rate a mention on the Google news page yesterday, unless you count a story about the Pope that had a Vatican dateline. We can only surmise that the panic over Italy’s would-be descent into anarchy that had engulfed newsrooms has not spread to the general populace, let alone to Wall Street. So what to make of these almost daily swings of 100 to 200 points, each opposite the last?  Our suspicion is that the stock market is building a broad top. By definition, that means it has been visiting pain on bulls and bears alike.  We’re in the latter camp, although untouched by pain as yet. About two weeks ago, we be  the “Don’t” line with the acquisition of some put calendar spreads in the Diamonds, a proxy for the Dow Industrial Average.  Although we usually shun options with distant expirations, because time only works against the retail buyer of puts and calls. In this case, however, we put on the spread with the goal of “rolling” it twice by summer. Specifically, we bought the June 130-March 130 put spread for $1.50 when the Diamonds were approaching a Hidden Pivot