DIA

Shorts panicked Friday afternoon, sending this ETF into a bullish spasm that tripped a theoretical short at 270.29. Since we don't know how DaBoyz will open index futures Sunday night, there was little justification for bold action. If DIA were to gap higher Monday morning, following the lead of a rampant E-Mini Dow, a move exceeding not merely C=274.59, but the 'external' peak at 277.40 recorded two days earlier, would be warning bears not to get in the way aggressively.  Alternatively, if the week begins with pronounced weakness, use p2=261.70 as a minimum downside target, and thence D=257.41. Both can be bottom-fished with as tight a stop-loss as you can abide. An rABC set-up on a chart of lesser degree will likely be the best way to do this. _______ UPDATE (Sep 29, 5:46 p.m. ET): Buyers chickened out just shy of the 277.40 peak noted above, but they appeared to be staging for a second try after dipping halfway into the gap created by Monday's short-squeeze opening. If Mr. Market is as devious as we know him to be, he will pop DIA above the recent 277.12 peak and then pull out the rug. Here's the chart. _______ UPDATE (Sep 30, 6:13 p.m.):  Well, we had the breakout and the possible beginning of a big correction. Now let's see what bears are made of.

A bull-trap opening greased the skids for the nasty plunge that followed. It caught bulls and bears with their pants down, so there's likely to be follow-through on Thursday. If the selling breaches the 266.00 midpoint support decisively, brace for more downside to as low as 257.41 over the near term.  Mechanical shorts can be attempted on snapback rallies to the red or green line, but I am not recommending bottom-fishing with the usual tight stop loss because the A-B impulse leg is low-quality, having failed to surpass any interesting prior lows.  _______ UPDATE (Sep 24, 9:20 p.m.): The short trade played out on Thursday exactly as I'd mapped it the previous night. If you did the trade, please let me know and I'll establish a tracking position. In any event, half should have been covered on the selloff that followed DIA's brief pop above the green line.

[DIA] Bears turned chicken Friday afternoon, scrambling needlessly to cover shorts ahead of a weekend that was unlikely to produce 'good' news. Now, a rally to p=278.76 would trip a weak 'mechanical' short, stop 280.59. I'd suggest paper-trading this one unless you've caught a profitable ride up to 278,76. The trade should be executed with a rABC set-up on the 15-minute chart (or less). As always, if the eventual, expected fall to D=273.29 exceeds the target, especially on a closing basis, that would warn of more weakness to come. _______ UPDATE (Sep 21, 8:49 p.m. ET): Sellers are probably done for now, having achieved the 'D' target of a three-week-old pattern almost exactly. It is calculated using the highest possible 'A' on the chart; my original target used a secondary high recorded on Sep 3 and was relatively conservative. Here's the chart. _____ UPDATE (Sep 22, 5:16 p.m.): This pattern, with a 274.68 rally target, can serve for trading purposes, implying a 'mechanical' long from x=271.01, or a short from D=274.68 for those who have enjoyed the ride up. Please note that a gap opening in the morning -- something that occurs regularly in this vehicle -- could negate the pattern or at least diminish its usefulness.

DIA still has an outstanding target below at 271.71. If it rallies to x=279.80 in the meantime (see inset), that would trip a theoretical 'mechanical' short. This one is for experts only, however, since the signal would be a weak one. Signs are slightly bullish, though, since two days of trying could not bring DIA down to p2=274.40. In addition, the bearish impulse leg from the 292.36 high recorded on September 3 is weak. My hunch is that bulls and bears alike will get racked by Mr. Market this week and that any decent trading opportunities will come from intraday signals on the lesser charts.______ UPDATE (Sep 14, 8:31 p.m.): The day began with a gap-up short squeeze and ended with shorts looking like dead ducks. If more of the same send DIA above the 285.79 peak from 9/4, bears had better dive for cover. _______ UPDATE (Sep 15, 5:11 p.m.): Mr. Market, friendly as a rattlesnake, head-faked DIA above an important peak on the opening bar, then it receded for the remainder of the day. This was meant as a reminder to bears that even when they are right, which seems to be the case at the moment, it is still extremely difficult to hold onto a well-timed short position. We shall see. _______ UPDATE (Sep 16, 5:22 pm.): Distribution, anyone? Pretty feeble, at that. _______ UPDATE (Sep 17, 11:05 p.m.): The gap through =278.76 on the opening bar means DIA is headed down to at least D=273.29. You can get short 'mechanically' with  put options if this hoax rallies to the green line, 281.50. Stop yourself out at 284.24.

Sellers were subtly unimpressive last week, implying bears could find themselves running for cover when the new week begins. Notice in the chart how three successive down-legs on Thursday and Friday failed to exceed 'external' lows to the left of them. The shortfall in each case was only a tick or two, but that was enough to categorize the legs as corrective rather than impulsive.  This suggests that bears were lacking in confidence, even though tech stocks were getting hammered brutally at the time. If index futures open higher Monday evening, we should focus on the 268.40 'external' peak shown in the chart, since an easy move past it, especially early in the session, would suggest buyers mean business. However, even if the Mini-Dow were to open lower, a midpoint Hidden Pivot support at 27,889 would be an opportune place to try bottom-fishing with a tight stop-loss. Here's the chart. _______ UPDATE (Sep 9, 9:10 p.m.): DIA not only gapped through the green line on the opening, it also crushed a midpoint Hidden Pivot support at 276.21. This implies more downside over the near term to at least p2=272.37, or to =268.53 if any lower. Here's the chart. _______ UPDATE (Sep 9, 11:33 p.m.): This morning's gap-up short squeeze began with promising viciousness but ultimately died well shy of the imposing 'external' peak recorded last Friday at 283.88 on the way down. The burden of proof will be on bulls when the day begins. _______ UPDATE (Sep 10, 10:18 p.m.): Look for DIA to continue down to at least 271.71 as the week ends. An overshoot of more than 0.50 points would give bears a head start next week. Here's the chart.

Buyers brushed aside a secondary pivot at 285.16, turning it into an apparent support by week's end. The clear implication is that DIA will achieve the 297.18 target, putting the cash Dow just below 30,000. I wouldn't count on round-number resistance to halt the stampede for long, especially since the bull market projection I've flagged for the E-Mini S&Ps elsewhere on this page would equate to around Dow 31,000. DIA's ascent, although not quite as steep as the Nasdaq 100's, has provided no opportunities to get long 'mechanically' on the daily chart, although there have been several set-ups on the lesser charts. They cannot usually be foreseen a day in advance, however, so we'll have to continue looking for them intraday. Meanwhile, I would not suggest buying naked call options merely because this vehicle is a lead-pipe cinch to reach the rally target. Instead, focus on butterfly spreads centered on or very near the target. The Sep 18 296/298/300 'fly would be a great buy for 0.10-0.15, since it has the potential to return perhaps 1.50-1.80 with DIA trading near the target between Sep 16-18.  You might also consider calendar spreading the 300 strike.  The Sep 25/Sep 11 for 0.60 would yield excellent odds, since it could widen to as much as 3.00. _______ UPDATE (Sep 2, 9:29 p.m.): The trade ideas suggested above have already produced significant gains, but because they attracted no discussion whatsoever, I have no way of knowing whether dozens of subscribers are keen to jump on put options when DIA hits 297.18, which it will. _______ UPDATE (Sep 3, 10:06 p.m.): Today's big selloff did not significantly alter the odds of DIA achieving the 297.18 target, although a further drop exceeding 275.87 would.

We've been using a 285.16 price objective for months, but it is not even a 'D' target, just the secondary pivot of an unambitious pattern that projects to 297.18. It has been a long slog -- one not particularly well suited to naked-call strategies. A perfectly timed bet on Aug 28 280 calls would have made you a few bucks, but not much more. As always, the key was to have taken off half of the position after the options doubled in price early on.  The ride to 285.16 from here is a no-brainer, and DIA could eventually make it to 297.18, but I have no simple option strategies to recommend. Here's one that sounds harder to do than it is -- a call butterfly centered on the 295 strike:  Buy the Oct 2 295/300/305 'fly for around 0.20. This implies shorting two 300 calls and buying a 295 call and a 305 call for a net debit of 20 cents ($20). The most you can lose is $20 per spread, but if the stock is trading near 300 at expiration, you could make as much as $500 per spread (although $260-$320 would be more realistic).  Work out the value of the options in this position with DIA trading at various prices between 250 and 350 if you want to understand exactly how butterfly spreads work. You could also do a 'rolling'  calendar spread, buying Oct 16 300 calls for 1.25 while shorting Sep 4 300 calls against them for 0.10. When the latter expire, you would short Sep 11 calls; then, the next Friday, Sep 18 calls. If DIA continues to move higher, the premium you would take in for each successive short sale would continue to increase. Ideally, DIA would be trading for around 300 on Oct 16,

Much as I'd hoped to find a technical glimmer of sanity, it is nowhere in sight on DIA's intraday charts.  The island-gap reversal (see inset) back in early June was ostensibly bearish, but last week's consolidation above the gap and the midpoint Hidden Pivot of the very bullish pattern shown suggests bears are in for at least a few more weeks of brutally tough love. Friday's pop above p was slight, but the fact that DIA closed above it, and that this occurred on the high end of the week's final hourly bar, suggests that bulls are as revved up as they were in early April, before they embarked on the most powerful and financially consequential rally in history. The 297.18 target shown would leave the Dow just a hair shy of 30,000, and there's no point in fighting it. Our trading bias will remain bullish for the foreseeable future, presumably via 'mechanical' entries of a lesser degree than the chart shown. A pullback of one full HP level, however unlikely, would be a screaming 'mechanical' buy. _______ UPDATE (Aug 12, 4:38 p.m. ET): Buyers are closing on p2=285.16 (see inset) -- a good place to look for a tradeable stall, especially if you've been long on the way up. _______ UPDATE (Aug 19, 8:40 p.m.): The 285.16 rally target and the trade remain valid, although today's drop occurred with DIA having gotten no higher than 281.76.

I instituted coverage of this vehicle a while back to provide an equity-based alternative for subscribers who'd rather not trade futures. Unfortunately, we've been hobbled finding good entry points to leverage puts and calls because DIA only trades during daytime hours.  That means it is most often playing catch-up with index futures, which tend to hit tradeable reversal points in the dead of night. Most recently, over the last two weeks, DIA has failed to reach a red-line resistance at 273.14, a Hidden Pivot we've used as a minimum upside target that could have provided some attractive opportunities to get short. In each case, the E-Mini Dow did touch the equivalent 'p' during the night session. Another problem is that DIA's pullback to the green line last Thursday would ordinarily have been used to trigger a 'mechanical' buy. In the actual event, however, I couldn't justify the trade because the high preceding the pullback did not quite reach p.  I am not about to abandon DIA because of the problems noted above, but I wanted you to be aware of why good trades in this vehicle have been few and far between.