Dow Industrial Average

Last week's marginal new record high generated a bullish impulse leg on the daily chart (see inset) before shares tanked on Friday.  Now, it will take a 'booster-stage' rally of at least 110 points from 16192 or higher for bulls to seize the reins. Alternatively, an uncorrected fall of about 300 points from here, to below 16126, would hint of serious weakness to come. My gut feeling is the that the broad averages will move sideways to lower this week, providing us with a possible bottom-fishing opportunity at the p or D Hidden Pivot of the corrective pattern.  More immediately, traders should view a rally Sunday night or Monday morning as a shorting opportunity. Stay tuned to the chat room if this interests you.

It was just my luck to have hung out a headline predicting a 600-point rally on a day when the Industrial Average got sacked for 231 points.  However, you can see for yourself that the mini-avalanche has done little real damage thus far to the preternatural upwardliness of the weekly chart (inset). By my runes, it would take an uncorrected selloff exceeding 14719 to wipe the stupid smile off Wall Street's face.  An 'impulse leg' with that kind of power would allow permabears, finally, to breathe a sigh of relief over the death of a five-year bull market that even on its best days was never more than a brazen hoax. (And by the way, DaBoyz will be splitting a bonus pool of $26 billion for all the hard work they did in 2013.) For the present, and irrespective of yesterday's loss, my ambitious rally target (17622) for this vehicle will stand, at least in theory and until such time as 14719 is exceeded to the downside. Meanwhile, as a practical matter we should trade the Indoos with a bearish bias, since it seems extremely likely to go at least somewhat lower before it can go higher.

We got a clear and decisive answer yesterday to the question that has been on every tiny, fevered brain up and down Wall Street:  How long do we have to feign concern over the situation in Ukraine?  The Dow finished up 228 points after being up as much as 250 points intraday, proving yet again that the stock market, fed by a limitless stream of easy money, has absolutely no connection to the world of events.  Unfortunately, traders had little opportunity to grab the rally by the tail, since it was effectively over on the opening bar (see inset).  And by day's end, it had left bears pinned to the ropes yet again, ready if unwilling to energize the next freakish, short-squeeze to who-knows-how-high. Actually, we do know how high, since there's a clear-as-day Hidden Pivot target at 16437 on the intraday charts, and another at 16607 if the first fails to contain the opening-bell stampede. A move exceeding the lower number by as little as 4 points should be regarded as the go-ahead for achieving the next.  Traders looking to get long using the 'camouflage' technique should focus on the 10-minute chart, since it was bullishly impulsive at Tuesday's close. You should also view a retracement to 16339 as a possible buying opportunity, since that is the midpoint Hidden Pivot of the rally pattern yielding the target at 16607. Either of the two targets is shortable using the Diamonds, and the second can be shorted with a micro-tight stop-loss instead of camouflage.  If you're lucky enough to have been long on the way up, I'd suggest using a portion of your gains to short 16607 more aggressively. For a simple strategy using put options, check out today's tout for the Diamonds.

Anyone attempting to trade yesterday's nervous dithering would have found it difficult to identify an appealing opportunity over the six-hour stretch. In the chat room, I opted for a short, fruitless ride higher in the throes of an overbearingly down day, but only because it was the first easily exploitable 'camo' trade signaled after the opening bell. The day's ups and downs were all calibrated in some fashion to the news, which was highlighted by an Obama threat to 'isolate' Russia economically, with Europe's help, if Putin doesn't stand down.  Got that now? Europeans are going to boycott Russian natural gas and shiver for the rest of the winter. Right. Whatever happens next, it's hard to imagine stocks rallying in the days ahead if the news concerning Ukraine comes mostly from the White House. Under the circumstances, we might expect shares to meander lower, perhaps doubling Monday's modest 150-point loss in the Dow by week's end. If Russian troops should open fire, though, be ready for an instant 300-point drop to the 15807 midpoint Hidden Pivot shown.  Worst case, if things turn very bloody, would be a plunge to 15217.  Keep in mind that this would not happen because anyone on Wall Street actually cares about events in Ukraine, but because those who throw Other People's Money at the market are on a hair-trigger in order to beat their colleagues to the punch. A case of 'monkey do' as monkey nervously expects other monkeys to do.

The accompanying chart speaks for itself. As you can see, on the weekly chart the Dow Industrials have snatched victory from the jaws of defeat many times over the last five years.  Instead of completing downtrending ABC patterns to their respective D targets, in virtually every instance, selloffs reversed from their p midpoint pivots or very near them. Will it happen again? Since  we don't have a crystal ball, we'll have to wait and see. But if the downtrend from mid-January's highs resumes and goes on to exceed 'D', it would indicate the almost certain onset of a bear market.

Although the steep decline of the last three weeks may have quieted the hubris on Wall Street, it has barely made a dent in the long-term trend. Indeed, from a technical standpoint, the Dow could fall a further 727 points without seriously damaging the weekly chart (see inset). A uncorrected drop of that magnitude would surpass two prior ‘external’ lows (#1 and #2), generating the first bearish impulse leg we’ve seen since August 2011.  Keep in mind that that correction, ugly as it seemed at the time, primed the blue chip average for the steepest, most powerful bull run in history. My bull-market target is still 17622, and although subscribers are currently short from near the New Year’s Eve top via DIA put options, the bullish case for the long-term remains intact. We’ll be better able to gauge buyers’ fortitude if and when the Indoos fall to 15209, a Hidden Pivot support that comes from the daily chart.  That target is sufficiently clear and compelling as to warrant tightly stopped bottom-fishing, but if it gives way easily, that would be a sign of further weakness to come and perhaps another big leg down. Accordingly, traders and investors should set an alert at that price, since price action there could be telling.  Click here for a free two-week trial subscription to Rick's Picks, including access to the chat room. _______ UPDATE (February 10, 10:13 p.m. EST):  The Indoos fell no lower than 15340 before reversing sharply.  Now, if they extend the winning streak today with yet another powerful gain, it'll shorten the odds of a recovery to the old highs in the week ahead.

The year has not exactly started out with a bang for bulls, and so the suspicion grows that stocks will have to go lower before they can resume their wonted wilding spree, soon to enter its sixth year. A logical minimum target for the correction is 16067, where the most recent rally leg took uninhibited flight. We just missed buying puts in DIA on Friday, but we'll keep trying, especially when the apparent heaviness in this vehicle lets up every so often for an hour or two.

With the New Year just weeks away, I'm as curious as the next guy about whether the Dow will soar, slither or slump in 2014 . For the moment, it has taken a breather after impaling the 16087 midpoint resistance shown. The overshoot may look minuscule, but it's actually 88 points -- probably enough for us to infer that bulls have the moxie to eventually push this vehicle to the midpoint's D sibling, 17622. It also implies that a retracement to the green line, which lies 565 points beneath current levels and  855 points off the all-time high, should be regarded not as threatening, but as a potential buying opportunity. This very bullish assessment is purely mechanical and goes sharply against my gut feeling that there are too many negatives weighing on stocks, the huge cost of Obamacare chief among them, for the stock market to make much headway. When there are conflicts or doubts in my outlook, however, I have learned to trust my bland technical indicators over mere facts and logic. In any event, we'll wait and see how energetically the Indoos attack the red line, assuming they do so at all. Of course, if rumors prove true that no Tapeworm will be announced as a result of the Fed's most recent meeting, the red line could be chop suey by midweek.

Although I can think of a hundred good reasons why the broad averages should be falling apart, chief among them the catastrophic failure of Obamacare and the effects thereof on a huge swath of the U.S. economy, there is one factor that for the time being will continue to offset them all: promiscuously easy credit.  And that is why we should regard the weakness of the last few days as a sleazy shakedown attempt by DaBoyz. Their goal, of course, is to load up on stocks before goosing them into a parabolic Santa rally next week. (Applying such a cheery, chirpy metaphor to so corrupt, cynical and evil an enterprise as the stock market makes me want to barf.) Notice in the chart how the week's engineered sell-offs have grown more and more impacted with each new day. The scrunched up price bars suggest that DaBoyz are not having an easy time trying to frighten widows, pensioners and orphans out of their shares. If this is in fact the case, we should see a mad scramble for stocks in the final hour or two on Friday. If not, we might infer that perhaps the Obamacare dreadnought -- along with a reported huge inventory build-up by retailers -- is finally starting to weight on investors' tiny, terminally diseased brains.