Dow Industrial Average

Naturally, with the Dow up 260 points yesterday, traders were wondering whether it meant something. The answer is no, it did not -- at least, no more than, say, an announcement that Krispy Kreme had figured out a way to make a tasty creme-filled donut with fewer than 150 calories.  Technically speaking, one could infer that the rally was bound for 17991 when the closing bell brought a temporary end to the day's silliness. No one who'd been on the sidelines Wednesday night could have made money on the move, since most of it happened on a gap-up opening in the first few minutes of the day.  A finishing stroke to the target on Friday could be over in a blink as well if the Dow has to play catch-up with index futures. As of around 8 p.m. EDT they were trading slightly higher, but that could change if traders catch a whiff of something savory going on in Asian or European markets.

In the chat room yesterday I suggested taking a small put position in DIA, but after taking a fresh look at the cash index, I'm going to cancel that order. My advice was based partly on the fact that the Indoos had stalled an inch below an important Hidden Pivot resistance. But the correction so far has been very shallow, implying that it's far more likely to become a consolidation than a distribution.  Also, if you draw the pattern from the one-off point 'A' low as I've done in the chart shown, it yields a so-far high that has exceeded our 'hidden' resistance. Under the circumstances , we should focus on low-risk opportunities to get long rather than accumulating puts. First, however, I would like to see this vehicle pull back a bit more, at least stopping out overly eager bulls below the point 'C' low shown. Since any subsequent 'camouflage' entry could be tricky, look for me in the chat room if the trade sets up like the one I've sketch hypothetically.

If the pattern shown lives up to its promise, we should see the Indoos leap with maniacal energy to the 18486 target within the next week or two . The blue chip average has been in an apparent consolidation since December, but the recent rally to 17591 (point 'B' in the chart shown) has created an additional impulse leg that must be resolved soon or go wasted.  The entry signal would be tripped on a print at 17914, but if it happens as early as this week I'd be wary of a false start. _____ UPDATE (February 17, 6:55 p.m. EST): Maniacal leap?  More like a banana-slug crawl. At this point, and in light of the key target just above in the E-Mini S&Ps, 18486 seems a tad ambitious. Let's give it another day or two.

Even on the hourly chart, you can see how the Dow could continue to effect 1000-point swings without saying much.  There have been no fewer than three such swings since early December, and they add nothing to our store of knowledge other than that volatility seems to be picking up.  Does that imply something has changed? Maybe. But even if so, Wall Street has been shrugging off earth-shaking headlines for nearly six years, acting as though all news is either good news or irrelevant.  From a technical standpoint, yesterday's low could not conceivably have occurred in a more obvious place, two points from last Tuesday's bombed-out low. This means the low is likely to be tested today, and that a probable failure will send the Indoos down to  mid-December's 17067 low in search of better traction.

This week's commentary, Predictions for 2015 and Beyond, mentions a 19457 target for the Dow Industrials. This Hidden Pivot resistance is shown in the accompanying chart, and although I didnt' notice it earlier, the very sharp, precise pullback from the 17399 midpoint pivot corroborates the target itself.  It would also be a logical places to attempt bottom-fishing on a pullback, although I'd suggest using the 'camouflage' technique to limit entry risk.  If you're unsure about how to do this, stay tuned to the chat room, where I'll be providing real-time guidance if the Indoos should retrace to the red line.

Yesterday's plunge was a rare delight, both exhilarating and unexpected. In recent years, we have seldom seen stocks fall for three consecutive days, and that's why the weakness came as a surprise. Admit it: It feels right as rain when stocks are falling, since the bull market begun in 2009 is a creature of loose monetary policy rather than of economic growth.  From a technical standpoint, it is ever-so-mildly bullish that the downtrend did not quite reach the 17478 target shown, let alone the somewhat lower alternative target at 17447. My hunch is that this will happen overnight, and we can track it by monitoring the E-Mini Dow futures. The corresponding targets for this vehicle are 17478 and 17450, and the second should be considered in play if the first is exceeded by more than five points. Either can be bottom-fished with a stop-loss as tight as 4 points. If the lower target is easily exceeded, however, it would imply that more selling impends. ______ UPDATE (December 12, 1:58 a.m.): Thursday's strong opening-hour rally fizzled with an afternoon sell-off that left a gratuitous hump on the intraday charts. It projects to 17528, or to 17457 if any lower, with 17389 a worst-case target for the day. ______ UPDATE (3:20 p.m.): The Indoos ratcheted down to a 17357 low in the early going, exceeding my worst-case target for today. This has bearish implications going foward. At the moment, however, price action has gone tediously sideways for nearly four hours. _______ UPDATE (December 14, 10:12 p.m.): I missed an obvious target when I gave 17389 as a worst-case low for Friday. As you can see in the new chart, the low occurred just a hair from an easily calculated Hidden Pivot at 17275.  This implies the selling may have run its course,

Investors shrugged off weak holiday sales with some half-hearted selling yesterday. We'll know whether they're under any real pressure once we've seen how the Dow interacts with the 17739 midpoint support shown. The blue chip average should go no lower if bulls are about to seize the advantage; otherwise more slippage to at least 17655 would become likely.  An easy move through either of these Hidden Pivots seems unlikely in view of the stock market's resilience on Monday, but if that should occur it would be warning of an imminent pick-up in selling.  Most bullish of all would be an upturn from a low 10 or more points above 17739. If the rally continues, exceeding 17823, expect a new record high to be achieved within hours.

It would take a mere 180-point rally to bring the Dow Industrial Average to the tantalizing, 17865 Hidden Pivot target shown. Odds will probably bend more favorably toward getting short there with a tight stop-loss than trying to get long for the ride up. However, I say that only because, permabear that I am, I am imagining the Indoos taking a very steep plunge without having achieved so obvious an objective. What I cannot imagine is buyers blowing past the target as though it were not there. Accordingly, traders looking to get short should use a corresponding target at 178.47 in DIA. Focus on out-of-the-money put options with 1-3 weeks left on them that can be bought for 0.60 or less. You should initiate this trade with DIA no more than 15 cents from the target, adjusting your bid so that it cuts the spread in half.  _______ UPDATE (November 21, 9:51 a.m. EST): DIA popped to 178.60 this morning, but I'm still waiting to hear from subscribers who bought puts before I establish a tracking position.

The downtrending ABC pattern shown is clear enough that we should have expected more of a bounce from each of the two Hidden Pivot supports circled in red. When Hidden Pivot targets give way this easily, it implies that the underlying trend is likely to continue and may be about to accelerate. This is notwithstanding short-squeeze rallies such as the one yesterday that gave fleeting (and deceptive) buoyancy to the broad averages.  Be aware, however, that an even nastier decline in January gave way to one of the most relentless bull runs in memory. Like the current selloff, it generated a bearish impulse leg on the daily chart.  Is this likely to happen again? My very strong feeling is that it won't -- that the current weakness is the nascent phase of a very powerful bear market. Even so, we should keep an open mind when stocks rally. At the moment, the Dow would need to leap 436 points without a visually significant correction, surpassing a 16757 'external peak recorded Friday on the way down, just to turn the hourly chart bullish.