DIA

The Diamonds gapped lower at the bell yesterday, mooting the bullish gambit I'd suggested. Now they appear bound for the 162.77 target shown, and although the pattern itself argues for a precise hit, this is unlikely to provide optimal conditions for bottom-fishing because the target coincides with an obvious structural support a tick above it recorded on April 28.  Under the circumstances, any bids should be based on the subtlest of uptrending impulse legs originating within a few ticks of the target.  Please note as well that there could be a shorting opportunity at the opening, given the distributive action beneath the 163.97 midpoint pivot in the final hours of Tuesday's session.  Traders inclined to shoot from the hip can try buying near-the-money weekly calls for perhaps 0.42-0.45 with DIA trading within a few cents above or below 162.77.  Risk no more than 0.12 on the stop-loss. _______ UPDATE (May 7, 6:30 p.m. ET): The expected bounce came, not from the 162.77 target noted above, but from well above it, a few ticks beneath Monday's 163.45 low. The breach of that low must have stopped out every bull in town, since the rally that ensued was quite steep. But not especially powerful, since, as you can see, it failed to surpass the 'external' peak at 165.17.  Since this vehicle has been spasming gratuitously for more than two weeks, I'll have little to say about what it might do today. However, I've labeled several peaks that can be used to leverage any impulse legs that occur in the early going. As always, a bc-type pullback from slightly above any of them could provide the 'camouflage' entry opportunity we look for.

The large, bullish pattern shown projects to 166.52, but notice how the final hour of yesterday's session was spent playing toe-sies with the midpoint pivot.  Buyers did manage, however, to push this vehicle sufficiently above p to make the presumptive follow-through leg no worse than an even-odds bet. Accordingly, traders should use the small ABC pattern shown to initiate a long position via 'camouflage' (or your seat-of-the-pants version of it) when the entry signal is tripped. Please be aware that a lower point 'C' could occur, and that would lower the corresponding entry signal.

So certain was I that this vehicle would plummet to exactly 159.80 on Friday that I added the following note to my tout, which suggested bottom-fishing at that price: "The Devil himself could not entirely avoid a Hidden Pivot as clear as this one."  In the actual event, DIA fell to 159.88, prompting the following email message from a subscriber who recently took the Hidden Pivot Course:  "I am unable to stop myself from sending this email. There are D targets and then there are D targets. This was the latter one!!!!   I am talking about the DIA target you had for Friday. I have attached the chart you put out. In the tout you said, 'The Devil himself could not entirely avoid a Hidden Pivot as clear as this one'. "There were lots of times on Friday when it looked like the market would bounce and never get even close to your target, but you had this relentless confidence on this target. (I don't care that it did not reach the exact target). Your confidence gave me the confidence to not cover my positions when DIA bounced from around 160.25  at 10:20am to 161.25. I really want to learn how you could have such a high confidence in this pattern ? You are the only [guru] I have ever met who is honest, which is why I am asking you this question. Being a good student and learning is more important to me than just getting trade recommendations. TK." First, TK, let me tell you how pleased I am to hear from a subscriber who profited from the tout. The fact that you were able to do even though I missed the low of Friday's $1.59 plunge by 8 cents attests not only to your diligence, but to your

I tend to be uncomfortable when using a target as obvious as the one shown. However, if you accept that Mr Market is going to try to screw with your head as he carves out a bottom somewhere near the 159.80 pivot (note: The Devil himself could not entirely avoid a Hidden Pivot as clear as this one), then by all means give bottom-fishing a whirl. My suggestion is to use call options that expire today, perhaps centered on the 161.00 or 161.50 strike.  To further guide you, if DIA bottoms at the target early in the session, you should try to buy out-of-the-moneys that you think have a chance of finishing at- or in-the-money and which can be had for 1.00 or less.

It's impossible to predict the headless-chicken antics we might see on the opening bell. However, my strong inclination would be to short any rally that reaches a clear p or D Hidden Pivot.  Just such a target is shown in the accompanying chart, and although its pedigree leaves something to be desired -- there are no external peaks to be seen -- I regard the 164.30 target shown good enough for government work. This mean you could try shorting there with a stop-loss of perhaps 4-6 ticks.  Once above the 164.53 peak, DIA would be bullishly impulsive. While that might ordinarily incline toward getting long, in this case I would be more tempted to try shorting at the p midpoint of whatever bullish pattern develops. ______ UPDATE: The uptrend shown turns out to have failed at the exact midpoint of the pattern shown. Unfortunately, this means the short had to have been initiated at the closing bell on Friday -- too risky for my taste.

I'd suggested shorting a Hidden Pivot target at 164.12 yesterday (see inset), but it looked like a less risky play at the time. It may seem paradoxical that carrying a short overnight was the 'safe' way to go. However, if the target is hit today, especially in the early going, shorts could potentially face a firing squad, since they'd be bucking a bullish impulse leg from that point forward.  Traders can still try shorting the target, but only very gingerly.  Camouflage is not necessary, just a very tight stop, but I may suggest getting long intraday if there's an opportune pullback from in-between the two labeled peaks. ______ UPDATE: The foregoing was made moot by yesterday's downdraft. We'll try again when another clear opportunity arises.

If a wicked downdraft is brewing, my gut feeling is that it will draw its destructive power from a bull trap high rather than from a secondary peak that has thus far failed by a tad to achieve new record highs.  It is a matter of catching traders with their pants down versus pulling out the rug when they're half expecting it, as may be the case now. In hard numbers, this means I view a move to new highs as more likely than a downturn surpassing the key low at 153.12 recorded the first week in February.  At-the-money straddles with nine days left on them are going for around $3 -- too pricey for my taste.  We may be able to leg on a 'vertical' spread, or even a straddle, so stay tuned to the chat room if you're interested. ______ UPDATE (2:17 p.m. EDT): I don't see much danger in shorting D=164.12 (see inset, a new chart) if this criminally inspired gas bag should waft up to the 164.12 target shown by day's end. Plan on buying a dozen March 22 162.50 puts for perhaps 0.26 to 0.32 cents, and tie them to a 0.22 stop-loss thereafter.  Don't boldly pay up for these pups, by the way, since they will be evaporating tomorrow like dew on cactus if DIA is stagnant.

We shouldn't kid ourselves that it will be easy to buy puts when the Indoos have fallen 231 points a day earlier. Regardless, because the weekly chart looks primed to roll over, we should at least try to get a piece of the next downdraft.  Accordingly, I'll recommend bidding 1.55 for four April 4 160 puts.  I'll adjust this intraday, since it's most unlikely they will fall into our lap at that price. From where I'm sitting at the moment (i.e., Thursday night), it is not predictable how DaBoyz will stage-manage whatever distribution they might intend. It's possible there will not be enough buying power to do so.  On a Friday, the most difficult scenario I could imagine for would-be put-buyers would be as  follows: 1) a mildly weak opening, perhaps with a small rally, followed by 2) a steady drift lower during the middle hours, and finally 3) an accelerating, ugly selloff into the close.  Predictably, DaDirtballs would then rally index futures ever so gingerly Sunday night, distributing what they can; but the decline would resume in earnest before the opening bell on Monday, denying traders an opportunity to get short. ______ UPDATE: Like Malaysia Flight 370, the update I posted to this tout Friday morning mysteriously vanished without a trace. The gist of it was that the puts we were seeking to buy for 1.55 never traded any lower than 1.82.  This, despite the fact that the Dow was up nearly 50 points in the early going. If the puts had been fairly priced at the time they'd have traded for around 1.48.  Obviously, DaBoyz are not eager to sell puts right now for anything close to fair value. Even so, we can never afford to give away any edge to DaDirtballs. Better to hold no option position

The immediate rally targets I've flagged in the Dow have equivalents, respectively, at 164.16 and 165.65 (see inset). It is the latter where I would suggest trying to get short, and you can do so much more aggressively (i.e., in greater size) if you are reversing a long position held on the way up.  Use four March 14 165 puts, which I estimate will be trading anywhere between 1.25 and 1.45 with DIA mere ticks from the target. That's an educated guess, based on the fact that with the underlying at 163.57, the March 14 163 puts were 1.42 bid at yesterday's close. In any case, you should monitor the bid/asked spread on the options as the target is approached to get a better handle on their true value. And as always, you shouldn't pay up more than a penny or two, because every penny counts in this game. If fills are reported in the chat room, I will establish tracking guidance.   I have provided no instruction For getting long, since it's likely to be a bitch. _____ UPDATE (March 6, 7:03 p.m. EST): Some traders are already short the E-Mini S&P based on the lower of two targets given for that vehicle, but the short suggested for this one from 165.65 is still viable.