DIA

The implied 400-point Dow rally (see inset) seems somewhat ambitious as a target for getting us short, but it still looks like the easiest opportunity for high leverage that's likely to come our way over the next week or so. We should be alert nonetheless to the somewhat unlikely possibility that the top made last week at the midpoint resistance (red line) was bulls' final hurrah. Whatever the case, the one-size-fits-all trade we should use to bet on the bear would entail legging into 1-  or 2-point vertical bear spreads at zero cost with DIA trading near the 173.52 rally target. This will require our close attention, since we'd need to catch a swing high intraday to succeed. If you're interested, stay tuned to the chat room this week for timely details. ______ UPDATE (July 16, 6:24 p.m. EDT): Based on yesterday's close, I am still in love with the 173.52 rally target.  It looks very likely to be reached, and precisely.  A pullback to the 170.52 midpoint pivot could be used for belated buying. _______ UPDATE (July 30, 2:52 p.m.): The love affair has cooled, since this vehicle has failed miserably to sustain altitude above the 170.25 midpoint resistance. This adds to the evidence that the stock market's broad topping pattern may be entering its initial downward phase.

There's an important promising rally target not far above, at 171.67, and although we can try to ride the last segment of the implied thrust to that number, the more appealing trade lies in getting short when DIA gets there. To facilitate the trade, I'm going to attempt something a little different this time, legging into a butterfly spread by buying far-out-of-the-money puts first. Specifically, I'll be focusing on put options that we can buy in quantity (i.e., 50) for 0.05 or less.  This would give us initial exposure of perhaps $250, but if we catch a top of at least short-term importance, we'll stand a good chance of legging on the rest of the spread so that we are left with no risk whatsoever.  Even more important is that doing the remainder of the spread will be relatively easy if DIA tops at our number. _______ UPDATE: (July 9, 2:25 a.m.): We'll put this one aside for now, since DIA's recenty topped missed reaching the target by 1.20 points. This is bearish on its face, so our trading bias should be negative for the time being.

If the 'mystery target' in ES fails to contain the bulls, there is another in DIA that should make for an equally fetching short...eventually.  It implies that a 400-point rally lies ahead in the DJIA, and although that may sound fanciful, we've learned by now to give the mindless herd, especially when stampeding to cover shorts, the benefit of the doubt. Check out the June 12 DIA post in the archive for the exact number and a compelling chart. _______ UPDATE (July 1, 10:38 a.m. ET): As part of a straddle (vs. AMZN calls), we hold two 166-strike puts expiring in three days, but I'll suggest writing them off, along with the calls. The loss would be $268. _______ UPDATE (July 1, 11:14 p.m. EDT): We tested our luck with the purchase of some expiring puts at the 196 strike for 0.38, but got stopped out at 0.29 for a very small loss after having ridden them no higher than 0.45.  This is a less stressful play than shorting index futures, so expect more of it in the future. The chat room is the place to hang out for real-time guidance.

In retrospect, the 169.64 target noted a while back was a good place for bears to lay 'em out, since DIA has yet to exceed 169.58, the all-time high. Now, however, we'll be looking to get slightly short, effectively straddling the bullish bet we made Tuesday in AMZN.  Accordingly, if you hold calls in AMZN, you should try to buy 166-strike puts expiring on July 3 for 0.42 or better.  I would suggest putting a bid in at the price on the opening only, since it would probably get filled if the broad averages open with a weak rally.  If not, I'll update guidance in the chat room.  Remember, this play is only for those who are long in AMZN. (Note: We tried to buy the puts on the close with DIA in a very slight bounce, but the clock ran out on us.)  _______ UPDATE (June 26, 12:12 p.m.): Subscribers reported buying July 3 puts at the 166 strike for as little as 0.33, but I'll track two @ 0.40 to allow for less-opportune fills. In straddle fashion, they go against call options acquired in AMZN.  One side of the position or the other could produce a nice profit, but only if stocks get a little wild over the next 2-3 days.

Check Out the June 18, 15:14 post in the chat room for the precise location of the next, potentially very important, Hidden Pivot rally target.  It lies somewhat higher than the analogous target for the E-Mini S&Ps, but rather than try to rationalize the discrepancy, I'm going to suggest simply shorting either vehicle on its own terms. In the case of the Diamonds, you should use July 11 weekly puts, buying four of them at whatever strike price is selling for 0.80 or less when the target is reached or very closely approached. I will be in the chat room to provide further assistance, since this trade is intended even for relative option novices.  In addition, there is a rally target of lesser degree at 169.64 where you can try shorting (or 169.92 if any higher, owing to the lower point 'A' that is possible). This will be a do-it-yourself-er for more-experienced traders, but I would risk no more than 25% of the value of any sub-1.00 puts purchased when DIA hits either mark.

It's not a healthy sign that the buying binge begun on May 20 couldn't quite reach the 169.95 target shown.  Still, because the subsequent decline has yet to take out any significant lows, we'll need to give our grudging respect to this aging and possibly enfeebled bull.  I'll signal any shorting opportunities in the chat room and via email (to those who have signed up for email notification on their Account page). In the meantime, however, we should remain alert to any bullish trading possibilities, since our success at exploiting them can provide the extra cushion we need to get short fearlessly at new-record and swing highs.

he decline that followed Monday's upthrust to within 0.37 of a 169.95 target has effectively stranded our short offer.  Although the target remains viable, you should cancel the trade for now. The 171.67 target shown looks even more appealing, and we'll take a crack it when it gets within range. More immediately, since the target implies a rally of at least $3 in the offing, we can attempt to get long for what could turn out to be an exhaustion spike. I'll provide real-time guidance for this task in the chat room to all who are interested.

The 169.95 rally target shown doesn't synch up with the 1948.25 target given today for the E-Mini S&Ps.  In fact, it implies that the Dow will need to rally about 100 points higher than the analogous target for the E-Mini. Be that as it may, I'll suggest treating these vehicles separately: short 1948.25 and/or 1954.25 if you're playing the ES, but use 169.95 to buy puts if you prefer to trade an equity vehicle with options rather than futures contracts.  You can load up on out-of-the-money puts in whatever size you're comfortable with, but blow them out if they trade more than 0.15-0.25 below the bid price with DIA at 169.95. (Note:  The 169.95 target was erroneously given in two places above as 169.25, although not where I had boldfaced it in green.  This implies that no short was taken.  If you did so anyway, stop yourself out of the puts is they trade for 0.15 less than you paid for them.)  _______ UPDATE (June 10; 12:46 a.m.): DIA peaked yesterday at 169.58, so the 169.95 remain viable in theory. You can short there on the terms suggested above.

Yesterday's plunge generated the first bearish impulse leg we've seen on the daily chart in nearly six weeks. But is it any more threatening than the one recorded in early April, which reversed precisely on target to produce a rally to new record highs? My gut feeling is that, yes, the stock market's second consecutive failure to achieve more than a marginal new high is going to weigh more heavily on investors' greedy/fearful minds than the first. At the very least, it warrants hoisting a yellow flag lest we grow complacent about the possibility of an avalanche out of nowhere.  And make no mistake, that is how it will happen: with a few days of mild selling that instead of abating gathers strength like a hurricane over warm seas. A very bullish rally target at 171.67 remains viable nonetheless, and I'd be thrilled with the opportunity to get short there. But we may have to settle for less -- far less -- if the stock market's labored action since February turns out to be the start of a bear market rather than a correction. We'll know more after we've seen how far the nascent 'a-b' impulse leg travels, and what kind of follow-through 'c-d' leg it generates.