DIA

Surprise, surprise.  I presented the pattern shown when the Dow was trading 500 points higher and this vehicle was at 168.94. Lo, the bottom of last week's steep plunge occurred at 163.00, a mere 21 cents from the midpoint Hidden Pivot support noted at the time. This affirms my earlier assertion that the pattern would work like gangbusters to precisely nail the swings in this vehicle, both up and down, for weeks to come. Now, a timely implication is that if support at 163.21 fails, we can confidently assume DIA is headed down to the secondary pivot at 155.02. That would correspond to an 800-point drop in the Industrial Average. Traders should position accordingly. As always, the best source of information in real time about how to do this can be found in the chat room, so stay tuned! ______ UPDATE (January 11, 9:12 p.m. EST): DIA rebounded weakly off a 162.15 low yesterday, but the 1.06-point overshoot of our target was sufficient to cast the rally in a suspicious light. Accordingly, you should look to get short at midpoint pivots or D targets of minor abc uptrends. An alternative entry tactic would entail initiating a 'mechanical' short on a rally back up to p after it has been decisively exceeded to the downside for several consecutive bars. I've sketched his hypothetically for your further guidance.

The pattern shown, with its beauty pageant-quality impulse leg, looks like it could serve our trading needs for weeks or even months to come. It tripped a sell signal earlier this week at 171.41, implying that any rally back up to the green line can be shorted 'mechanically' with a stop-loss at 179.61. Thereafter, a precise bounce from p=163.21 seems sufficiently likely to warrant tightly stopped bottom-fishing at that number.  This would still be the case if DIA simply collapses in the days ahead, covering the 573 points to the target in mere days rather than weeks. If and when the 'D' target at 146.82 is achieved, the Indoos will have fallen 3388 points from the secondary top in November, and 3653 points from May's all-time high. In percentage terms, that would represent declines of, respectively, 19% and 20% -- a true bear market and presumably just the start of a much larger one.

The impulse leg here is not of the highest quality, but the precise pullback from p2=171.69 suggests the pattern could still be useful for trading purposes. Specifically, I'll recommend shorting at D=172.20 with a stop-loss as tight as  7 cents.  This countertrend play is what I would describe as low-hanging fruit, but if you're feeling up to it, you could also attempt 'mechanical' bids from x, p or p2 to make a fewe bucks on the way up.

Looking at DIA's daily chart (see inset), one can practically feel gravity's weight. Monday's rally was pretty feeble in comparison to the two-day downdraft that preceded it. It's not difficult to imagine that it won't get very far. Such short-covering as we saw yesterday cannot compensate indefinitely for the dearth of bullish buying that has been a feature of this market since October. In fact, what little of it occurred yesterday lasted for only an hour. Even at that, the squeeze was concentrated in the final hour, when bears are easiest to stampede. We will short this rally if we can, although it is not possible for me to provide reliable guidance for this task ahead of Tuesday's opening. Stay tuned to the chat room, since any upthrust to a midpoint resistance or a minor 'd' target will offer an enticement that is not to be passed up._______ UPDATE (8:23 p.m. EST): No change.

Using a bullish pattern in the E-Mini S&Ps, I projected a 700-point rally in the Dow if certain criteria were met. The bullish pattern shown (see inset) will not quite get the Indoos there, but they'll be about 80% along the way if they hit the 18035 Hidden Pivot resistance near the top of the chart. A rally to at least p2=17829 seemed all but certain when the closing bell rang on Wednesday, but traders will have to interpolate using the E-Mini Dow to get aboard overnight.  Thereafter, DIA can be used Thursday morning to catch a ride from 17829 to the 18035 target, or perhaps even higher.

Ordinarily I tie options recommendations to targeted highs and lows in the underlying stock. We'll try something new this time, buying put options based on a price pattern in the put option itself. I've demonstrated this tactic during recent weekly tutorial sessions, but this is the first time I've suggested it in a tout. Specifically, I'm recommending that you bid 0.28 for four November 21 165 puts, and 0.21 for four more, day order. These prices are just above the p2 support and D target (see inset) of a downtrend in an option whose price has already been cut in half in the last two trading sessions. _______ UPDATE (9:30 p.m.): The order will remain valid as long as the puts don't exceed 0.52. _______ UPDATE (October 28, 7:07 p.m. ET): We bought four puts for 0.28 and are bidding four more at 0.21. Considering the manic spirit of buyers lately and the stock market's take-no-prisoners rally, our puts should be treated as a gamble.  I have replaced the old chart of the Nov 21 165 puts with a new one that shows a bigger picture -- one that projects a possible fall to 0.04 if the puts breach p=0.20 by more than 3-4 cents or close beneath that price.  _______ UPDATE (12:56 p.m.):  WordPress is particularly recalcitrant this morning, and so this is the third time I've tried to publish this update (it did post properly and in timely fashion in the chat room at 10:44 a.m., however): Cancel the 0.21 bid for more DIA puts. We'll stand pat for now. I don't want to be buying more puts if this market turns around today.  _______ UPDATE (November 3, 8:45 p.m.): Which it did. We've risked a little more than $100 on this trade -- a 20-to-1 horse at

The bearish ABC pattern shown yields the maximum downside target I can project using the intraday charts. If the 16343 target is achieved, it would imply a further fall of 118 points from Friday's settlement price and an 11% decline from the all-time high achieved in June. Regardless, the plunge has already done significant technical damage to all charts up to the level of the daily bars. It could grow still worse if the plunge were to continue unabated, surpassing last October's watershed low at 15855. That would generate the most powerful bearish impulse leg we've seen on the weekly chart since the bull market began in March 2009.  We'll have a good opportunity to assess the bear's strength once we've seen stocks bounce and the downtrend resume. If that leg is weak and bounced sharply from its midpoint pivot, it could signal the return of the bull, along with a possible shot at new all-time highs.  All of this remains speculative at this point, but we should know before long whether last week's selloff is just a correction or the likely start of a powerful bear market.

Although my E-Mini S&P tout is ostensibly bullish, we shouldn't pass up a low-risk opportunity to short the counterintuitive pattern shown. This is a set-up that I've been emphasizing during the Wednesday tutorial sessions, and the opportunity is appealing here simply because the crowd's focus will be on whether DIA is about to break out above the 176.32 peak recorded on 8/10.  We'll look the other way, shorting DIA if it trips a conventional sell signal at the 174.70 point x of the downtrending ABC.  This trade will work best if DIA opens slightly lower, but a precipitous move down through 174.70 would reduce its appeal. Obviously, a pop early in the session above 175.93, the point C of the bullish pattern, would negate the opportunity. You can use stock to initiate the position, but if you buy puts instead, stick with near-the-moneys that expire this Friday or next. _______ UPDATE (9:44 a.m. EDT): Stocks have opened weaker than we'd hoped for, prompting someone to ask in the chat room whether we should still try to short this brick. The short answer is no, but here's my full reply: A rally back up to the trigger point, setting up a mechanical trade, would be the ticket [to get short] However, my concern is that, as usual, stocks are being manipulated sufficiently lower to dry up selling. We were looking to short DIA on subtle, creeping weakness, and this ain't it. Paradoxically, DIA will become a tightly stopped bottom-fishing candidate if and when it falls to p=173.46. That would have been my minimum downside target if we had gotten short. I'll be interested to see whether the usual pattern, where stocks make their intraday low on the opening bar, obtains here. If not, something has changed in a way that patient

We went bottom-fishing briefly on Friday, only to get stopped out for a nominal loss when DIA exceeded a minor correction target by more than a point. While this hints of more weakness to come, the chart shows why drama is unlikely. 'Nothing' has happened since early February, when the Dow embarked on a 1200-point rally, then went into a rangebound dirge that has stretched the patience of bulls and bear alike. I can suggest two ways to trade this chart over the next day or two: 1) short p2=175.77 'mechanically', stop 176.40, for a shot at D=173.89 (I've sketched a hypothetical set-up); or, 2)  bottom-fish that last number, a Hidden Pivot support, with a stop-loss as tight as 0.11. _______ UPDATE (July 27, 4:59 p.m. EDT): My target caught the intraday low within 11 cents, but 177 calls that could have been bought for as little as 0.18 never rallied above 0.23. There was little reason to hold the position overnight, so I am not establishing a tracking position.