Dow Industrial Average

Using Wolfe Wave signals, a chat-room denizen has determined that stocks are especially vulnerable to a downturn right now. This sent me to the DJIA chart to see if there were any corroborating signs. As it happens, yesterday’s high, achieved in the closing minutes of the session, came within 5 points of the 15890 target shown. Although we cannot predict with perfect confidence that this Hidden Pivot resistance will stop bulls in their tracks on Friday, if it fails to do so and the Indoos push decisively past it, any shorts who have been battling the Frankenstein Bull had better line up an escape route.

A query in the chat room Friday concerning the Dow Transports sent me to the charts in search of the inevitable rally-stopping Hidden Pivot. The index has been on a tear this year, up 35% since January. Much of the gain can probably be attributed to a new airline business model that has been great for carriers but horrible for passengers. We're talking about things like Spirit's $35 charge for storing carry-ons in the overhead bin. Lower fuel costs have also helped, especially since the carriers have evidently chosen not to share any of this windfall with passengers via lower ticket prices. And no passenger who has sat in the increasingly cramped economy section can be unaware that capacity has shrunk so drastically that nearly all flight are full or nearly so. Perhaps it will be the full-force resumption of The Great Recession that stops the rally cold.  In any case, the 7444 target shown, representing a 6 percent premium over Friday's closing price, looks formidable enough to provide more than a little challenge for bulls.   Those who trade this vehicle or related issues can use it as a minimum upside objective for now, but you'll want to reverse the position and go short -- tightly stopped, of course -- if and when it is reached. _______ UPDATE (November 5, 8:45 p.m. EST):  If it's going to be an easy cruise to the 7444 rally target noted above, we should see the correction from Monday's high reverse today from near the 7077 midpoint support (see inset), but certainly from no lower than the d correction target at 7042. More downside than that could be our first, subtle warning that all is not well with the Transports, which have flourished even as airline profits have soared on a suicidal model that

The chart (inset) reminds us that the so-far 1340-point rally from October's 14179 low is still merely corrective relative to the nasty downdraft that preceded it.  Even so, it may be wishful think for bears to assume that a major top is in.  In the first place, the series of higher highs and lows traced out since April is bullish on its face, notwithstanding the 'outlier' October low.  But what is perhaps even more striking is the lack of drama in the gently uptrending consolidation of the last six months. Nowhere in this chart do we find evidence of the sort of craziness we might expect to see if the most powerful bull market in U.S. history is nearing a finale At the very least, we should be looking for a steep run-up to new all-time highs -- the kind of bull-trap spike that leaves bulls giddy with hubris and bears too devastated to participate in the ensuing collapse. Admittedly, the possibility of new highs goes against our own, strong gut feeling that the combination of weakening corporate earnings, the precipitous reversal of the real estate boom and the economically devastating blow of Obamacare's huge new tax on the middle class will prove powerful enough to reverse the so-far feeble effects of the Fed's all-out stimulus. As a practical matter, we'll be attempting to stake out short positions with puts and calls that will enable us to make money betting against the market even if it continues to forge higher.  Mainly, this will entail legging into options spreads in which the bearish legs are initiated at the Hidden Pivot targets of intermediate-term rallies. In the E-Mini S&P futures, for example, we expect such an opportunity to occur with a run-up to a precise target not far above the recent all-time

The Dow blew past a major midpoint resistance at 15312 in mid-September with such force that we might have thought its 'D' sibling at 15684 was all but certain to be reached. Instead, the rally died 155 points shy of the target, then turned south with such a vengeance that the point 'A' low is now in danger of being breached. This price action is most unusual, given the ease with which bulls conquered the midpoint resistance in the first place.  Now, my hunch is that 'A' will in fact be breached but that the market will recover to hit a new all-time high. I base this scenario on the likelihood that the political wrangling on Capitol Hill will eventually quiet down, but not before things get worse as the debt-ceiling deadline approaches.

The Indoos' broad undulations since April have offered little drama, only the sense that those who control the ebb and flow are able to move shares gently higher while consolidating them for a potentially spectacular blowoff.  None of this has altered my 15864 bull-market target, although the narrow failure to achieve that number on the last big push begs the question of why. We'll look to get short there in any case, albeit with tight stops, but my hunch is that DaBoyz have bigger things in mind.  This would be strongly implied if the current correction, now two weeks old, bottoms near 15000 rather than coming all the way down to the lower channel line (see inset). An impulsive rally thereafter would generate the strongest 'buy' signal we've seen in a long while, but there's no point getting interested, let alone excited, until such time as bulls tip their hand.

I've used a Dow chart to get an idea of how much pain may be visited on bears before this silly, Whirled Peas rally sevens out.  The immediate answer is: 120 points.  However, if the 15312 midpoint pivot that corresponds to that number gets demolished, we should brace for more upside to at least 15864. That would be congruent with some of the fanciful numbers I've projected for rallies in Amazon, Tesla, Google and a few others.  I mention this so that those who have bought puts in DIA as I advised don't have illusions about making a big score. _______ UPDATE (September 12, 12:16 a.m. EDT): Yesterday's 135-point rally exceeded my 15312 benchmark by 14 points -- probably not sufficient to clinch a bull rampage to 15864.  Before we throw in the towel on sanity, let's stipulate that the Dow must close above the lower number for two consecutive weekly bars, or trade more than 50 points above it intraday, before we infer that bulls are hellbent on 15864. _______ UPDATE (September 16, 1:36 a.m. EDT): With Sunday night's Yellen-related hysteria, it looks as though the Dow will be halfway to the 15864 target before the day is over.

It can seem like everything is wrong with the world on days when the Dow wafts higher and higher while gold is getting whacked. And so it occurred yesterday, with the Dow gaining nearly 100 points as December Gold fell by $20.  Elsewhere in today's touts  I speculate on the possible meaning of gold's weakness, but as for the Indoos, they'll need an unpaused thrust of about 120 points within the next day or two to turn the daily chart impulsively bullish. I'd rate this no worse than a 50-50 shot at the moment, since the last downtrending ABC pattern went little further than the p midpoint support.  At that point, the big ABC pattern going back to late June's low would be in play, and with it a break-out-the-bubbly target at 15867, along with a midpoint resistance at 15312.  Big stuff.  Should we infer that the USA, egged on by Obama and his new best buddy John McCain, is finally about to win a war?  Naaahhhh!

The Dow underperformed the S&Ps on Thursday, leaving an ascent trail on the intraday chart far less impressive than the S&Ps. The move was not impulsive, not even on the lowly 15-minute chart, suggesting DaBoyz could have more trouble than their thieving colleagues in the E-Mini S&Ps manipulating this vehicle higher. I'd suggest using the 14780 target shown if the Indoos head lower. If not, and bears are still on the ropes by the final bell, I wouldn't even hazard a guess as to where they are left hanging.

Subscribers appear to be diligently working the Sep 140-135 put spread I'd recommended, so I'll establish a tracking position of 32 of them for an 0.11 debit. That's in the middle of the 0.10-0.12 range where I'd said the spread would become an attractive buy. At that price, our theoretical risk will be about $350 -- but with a potential payoff of as much as $16,000. Since the trade thumbs its nose at a bull market that has been going strong for more than four years, we should have no illusions about a big score. In fact, to accept the probability that the trade will be a loser like perhaps 99% of all puts purchased since 2009, you should kiss the $350 good-bye at the outset, then forget about the position.  That said, I really like the 45-to-1 odds we'll be getting on this bet. ______ UPDATE (August 7): Someone asked in the forum about those 45-to-1 odds. Herewith, my response, since some of you who did the trade may not fully understand what it implies:  "DIA would need to fall below 135 by September 20, Cam. That’s equivalent to a 2000-point drop in the Dow — a longshot bet, as I’ve noted. In practice, however, we could easily triple or quadruple our money or better if the Dow were to drop just 400-500 points over the next 2-3 weeks."  _______ UPDATE (August 15, 1:24 p.m. EDT): Since things are starting to go our way, let me suggest offering half (16) of our spreads to close for 0.33. If this order fills we'll have a shot at an $8000 profit with no loss possible, even after commissions.