DIA

The Diamonds cry out to be kicked in the nuts, since they bounced yesterday from such a stupidly obvious place, a nickel beneath the key low at 97.75 recorded on May 25. Keep in mind that this is NOT a double bottom in Hidden Pivot terms, since the 5-cent overshoot created a proper, bearish impulse leg.  We'll let things play out a bit before we attempt again to get short. The chart shows where a telling midpoint could conceivably form, providing us with an objective rationale -- and a plan --  for action.

The Diamonds should start plummeting toward a Hidden Pivot target at 93.50 any day now. Although I'd rather try to get short into an upswing, we should make a very small bet today so that we won't need to feign indifference if the plunge commences without warning. Accordingly, I'll recommend bidding  2.75 for a single July 96 put.  That's about what they might sell for if the Diamonds have to catch up to the E-Mini futures at their Monday-night levels (i.e., up about six points). _______ UPDATE (3:30 a.m. EDT):  The E-Mini S&P has been up as much as 13 points tonight, so let's bring our bid for the puts down to 2.15.

A Hidden Pivot rally target at 112.82 is equivalent to the one at 1219.25 identified in the E-Mini S&P. Let's try to get short by bidding 1.26 for four May 112 puts. I am making this a limit order so that it can be featured as a Pick of the Day. Such trades are designed to be easy enough for traders of all levels of experience to execute and to allow the order to be parked with your broker as a limit order. If you want to monitor the trade and execute it yourself --  a more promising tactic in this instance -- I suggest buying the puts if and when  the Diamonds reach the 112.82 target. Stop yourself out in either case if the puts trade for 10 cents less than their acquisition cost. _____ UPDATE: The Diamonds plunged on news of Greece's growing problems, denying us a chance to get short as planned.  The actual high was 112.18, well shy of the pivot.

Pick of the Day: We'll try to short a Hidden Pivot rally target today, but using two tactics that I usually do not advise. First, we'll be using a limit bid of 1.15 to buy two May 111 puts (which closed yesterday at 1.63).  Ordinarily, we would buy the options based on the price of the underlying stock.  I will also suggest that you not attempt this trade unless the opportunity arises in the final 90 minutes of the session; usually, I avoid trades late in the day.  We are breaking the rules for two reasons: 1) with DIA at 111.79, my rally target for today, the options would be fire-sale priced at 1.15;  and, 2) our low-ball bid anticipates getting the puts dumped in our lap at the tail end of a late-Friday short-squeeze.  (Note:  No one should have to pay for Rick’s Picks, and that’s why I offer a Pick of the Day:  to make back the cost of your subscription, at the very least, over the course of a year -- or a week, or even a day. )  ________ UPDATE (11:01 a.m. EDT):  Although the 111.79 target nailed the top of this morning's spiky rally to within a nickel, the trade was a non-starter for two reasons.  First, the target was hit, not in the final 90 minutes as specified, but in the first hour; and second, the  bargain-basement option price of 1.15 was based on the time decay that we might have expected toward the end of day on a Friday.  In actual fact, the puts traded no lower than 1.30.  (Premium values sometimes dive in anticipation of the weekend, especially when the option expires that month ; I ran theoretical values for April 26 to determine how much the puts would be worth using a very conservative estimate.)

There's nothing to guarantee that we did not bail out of our puts too soon, since the market could take a flying dive into hell today for no good reason. Regardless, in exiting May 108 puts for a small profit, we followed a chiseled-in-stone policy of never taking gains on puts -- even small gains -- for granted when we've boarded a downtrend with perfect timing.  Options are a tough enough game to beat without trying to make money on significant bear moves that occupy the stock market about 0.01 percent of the time.  So what would it take now to put the Diamonds back on an unmistakably bullish track? Let's set the bar at 111.26, a midpoint resistance shown in the accompanying chart. I'll further stipulate that that number be exceeded on a closing basis before we infer that still higher prices are likely.

We bought two May 108 puts for 0.86 -- two cents above their intraday low -- off a limit order, then sold one later in the morning for 1.26.  We'll hold onto the put (or puts, if you initiated the order in larger size) for now, using an adjusted cost basis of 0.46.   If stocks continue lower, I plan to short-sell a put at the 103 strike for at least as much as we paid for the May 108, but at the moment, it appears the exchange has not listed any May strikes below 107. _______ UPDATE 3:13 p.m. EST):  Use a 0.96 stop-loss to exit the put (they have traded no lower than 0.97 so far today).  In theory, this will preserve a profit of $50 per contract on yet another unsuccessful attempt to pick  The Top.

Harry has reminded me that the 11156 target given in today's Dow Industrials tout has a DIA equivalent at 111.50 that was flagged here a month ago (the original target was slightly higher).  So that we can at least have a horse in the race, let's plan on buying two May 108 puts.  Use a lowball bid of 0.76 in the first five minutes, but thereafter you can pay up to 0.86. _______ UPDATE (11:13 a.m. EST):   DIA has fallen sharplyb ut not before it head-faked in the early going, allowing our puts to trade down to 0.84.  We'll record them as having been bought for 0.86, a price that would have been available to anyone who attempted this trade. They are currentl 1.20 bid, so I'll suggest taking profits on half the position now.

Let's add the Dow Industrials to the list of major stock indices that we would like to short.  This can be done using a midpoint pivot of 111.50 from the weekly Diamonds chart.  We recommend selling at 111.37 with a stop at 111.77, risking $40 per 100 shares traded.  The equivalent of the pivot in the June Dow futures contract is estimated to be 11087.  (Posted by Doug McLagan) ________ UPDATE (2:40 a.m. EST, March 31):  In reconsidering the risk/reward characteristics of this trade, we have decided to cancel the recommendation.  Should the target be reached, however, traders should be alert to hidden pivot-based opportunities to get short if a reversal there appears to be underway.  For the Dow Jones Industrial Average, the midpoint is at 11156.44. 11156.440

A moderately important rally target at 107.58 is not likely to produce the Mother of All Tops, but it does look like a high-odds shorting opportunity because of its subtlety and the single-bar delicacy of its ABC coordinates (180m, A=97.94, 11/04; B=103.62, 11/11).   Accordingly, I'll recommend buying two February 107 puts (DIANC) if and when the target is closely approached.  A rough estimate of their value with the underlying at 107.58 is 1.80.  I did not use a calculator to come up with that number, by the way;  rather, I took the current, 1.93 bid for the February 106 puts and reduced it by 12 cents, based on delta value of 0.45 and a 30-cent rally to 106.58. _______ UPDATE:  The Diamonds plunged at the opening bell, so our short went unfilled.