Dow Industrial Average

All signs point higher, of course, but we should take note nonetheless of a Hidden Pivot resistance that lies just 150 points above last week's record high, 14598. I expect this impediment to be bulldozed like every other resistance below it has been, but the pivot is short-able nonetheless if you can hold risk down to relative nickels and dimes using 'camouflage' leverage on the 5-minute chart or less.  If the target is easily surpassed -- say, within hours of first being touched -- then we should infer more upside to at least 16309, the 'D' target associated with a somewhat lower point 'A' (see inset).

The presumptive correction from May's all-time high at 15542 may about to end, since the Dow need tack on only 20 points to yesterday's high to generate a robustly bullish impulse leg on the daily chart (see inset). I've labeled the two relevant peaks -- one internal, the other external -- that will have been surpassed in the process. As you can see, both are distinctive, single-bar highs whose breach would leave no doubt about the power and authority of this rally. Note as well that peak #2 is 'backstopped' by two others that sit in its shadow. Taken together, they represent a formidable supply zone that looks like it's about to be conquered in a mere week.  From a trading standpoint, there is little to do right now. However, if and when the ABC pattern further develops and trips a buy signal, we'll want to open a long position -- perhaps in the Diamonds -- using camouflage and the leverage of call options.

Today's commentary referenced the 15649 target shown.  What I did not mention is the reason why a rally to this number looks like an odds-on bet. Notice that Friday's upthrust (the rightmost bar on the chart) ended with the Dow sitting just above the red line, a midpoint resistance. The overshoot is slight, but even slight progress today would make a follow-through to 'D' all but a lock-up.

Monday's short-squeeze was deftly engineered, since DaBoyz were able to bring the Indoos back to the approximate midpoint of the intraday range. This is a continuation pattern, and the effect is to leave bears on the ropes for yet another day of body blows.  The good news -- for bears, that is -- is that all of the price action so far has occurred in the context of a larger, bearish impulse leg created when last Monday's bottom exceeded two prior, significant lows.  Now, if bulls are about to seize control in a big way, we'll know it by the way in which the next down-leg interacts with whatever midpoint Hidden Pivot occurs. This is shown hypothetically in the chart,  and if things play out similarly to what I've sketched, the 'p' support will be a good place to bottom-fish aggressively with the usual, microtight stop-loss.

I mentioned in today's commentary that the all-time high achieved in late May was precisely predictable, even if our attention was elsewhere at the time.  The actual high occurred at 15542.40, just five points from a key Hidden Pivot resistance at 15547.50 (see inset).  As a practical matter, the fact that the rally target was achieved somewhat shortens the odds that still higher highs will be seen. We'll know more once we've seen how the current correction place out. If it forms an impulse leg on the weekly chart by exceeding 14444 to the downside, the c-d follow-though leg will be crucially important.  Specifically, the selling would need to reverse from the midpoint of the follow-through leg or higher to imply that the bull market is still healthy.

The pattern shown looks too pretty to miss, even by a hair. Traders are encouraged to make hay, which for night owls could entail shorting; or for early risers, bottom-fishing the 15054 target with a tight stop-loss. You can interpolate by using either DIA or the Mini-Dow to initiate the trade. Their respective targets lie at  150.45 and 15053.  As we went to press (10:38 p.m. EDT), the latter had just kissed its target and appeared to be lifting, albeit slightly. ______ UPDATE (9:26 a.m. EDT): The support held for less than an hour before sellers drove Dow Index futures 140 points lower. They have yet to find traction and now look like a good bet to hit a trendline that currently comes in at around 14850 (see inset, a fresh chart).

Friday's price action produced conflicting signals. Although our 14899 downside target had been decisively exceeded a dy earlier, this was followed by a very robust, impulsive rally.  On balance, we should defer to bulls when stocks start to trade Monday morning, and traders should go with the bullish flow. However, if rallies of lesser degree start to fall shy of their 'D' targets, it would cast doubt on the integrity of the melt-up begun from the lows.

At this early stage, we have only a downtrend on the hourly chart with which to speculate on the possibility that a major top is in. Fortunately, the pattern is of such clarity and precision that its 'D' target at 14899 should be regarded as a reliable benchmark for gauging the selling power behind the so-far six-day selloff. As always, a breach of the target would imply more weakness to come; moreover, the easier it is penetrated, the greater the impending weakness to be inferred.  Camouflageurs can bottom-fish using the Diamonds (DIA), since a bounce from the targeted low seems quite likely. The reason we should employ camouflage is that the presumption of support at the round number 14900 is bound to attract the interest other players. Please note that if the Indoos should rally to the 15102 midpoint pivot before reaching the target, it would be an ideal place to try to get short.

Friday's final-hour plunge came within a hair of a well-defined target at 15107 on the intraday charts (see inset). My hunch is that follow-through selling on Monday morning (or perhaps Sunday night) will breach this Hidden Pivot support.  Were this to occur, the bearish implications would be the same as if the breach had occurred on Friday. In any event, we'll want to monitor minor upward abc corrections closely, since the failure of any such pattern to achieve or exceed its 'd' targets would be indicative of weakness of higher degree yet to play out.