Dow Industrial Average

I've recalculated the 14085 target as carefully as possible and come up with a new one, slightly higher, at 14098. It is short-able, but only via camouflage in a corresponding vehicle. (Note: We are already effectively short the Diamonds via some put calendar spreads.) The target is interesting because it would be odd for the Indoos to take such a puny last-gasp leap following a consolidation that has been developing for three weeks.  Stranger things have happened, though, and the target should be deemed sufficiently reliable in any case that its easy breach would imply that there is significant buying power remaining to be spent. _______ UPDATE (10:48 p.m. EST): I've set a chart alert at 13906.72, since that's exactly where the hourly chart would turn impulsively bearish today. _______ UPDATE (February 21 at 8:59 p.m. EST):  A low at 13834 generated the bearish impulse leg described above (see inset). That implies that the rally from yesterday's low is corrective and therefore short-able, presumably via camouflage.  We'll know whether buyers have been sapped of vigor once we've seen how the follow-through down-leg handles the p midpoint support. _______ UPDATE (February 25, 2:02 a.m. EST):  We'll back away for now, since the gratuitous ups and downs are getting a little freakish, if not to say fetishistically involved with 14000. This is how we've been expecting a top to be formed, since there are ten million of us oh-so-eager to get short.  However, if we do so at these levels, it'll be strictly on the basis of Hidden Pivot targets, of which there are no especially useful ones at the moment.

The heavy chop of the last week has occurred about 60 points shy of the clear-as-day 14085 rally target shown, hinting that it could be a distribution rather than a consolidation. A feint higher that actually reaches the target would make for a great bull trap, and so we should be ready to get short if it happens. However, we'll need to be on our guard as well against the sucker-punch that would come by way of a sudden drop out of this zone.  It would almost surely happen via a gap-down opening that has provided no great opportunity to get short.  If the Dow were to open a hundred points lower tomorrow, for instance, few bears would be aboard, since they should have gotten shaken out already by the 100-point daily swings that have become all-too routine.

The monthly chart shows the 14970 target that I alluded to in today's commentary as a possible terminus for the Mother of All Bear Traps. Although the futures have grown heavy in the C-D phase of the current bull cycle, it was to be expected, since they are taking the measure of the U.S. stock market's all-time high. Even so, you've got to respect the pattern, which consists of a very legitimate impulse leg and three single-bar coordinates.  You should take note as well of the 14098 target of a lesser pattern. I included it because it would seem to coincide very closely with the 1548.25 rally target I've proffered for the E-Mini S&P.

Friday's whipped-up hysteria failed to surpass even a single prior peak on the hourly chart, let alone the two we require to generate a bullish impulse leg. This is bearish on its face, but we shouldn't presume to know how DaBoyz will work the crowd on 2013's opening day, especially since the political eddies, currents and riptides are beyond predicting.  My hunch is that, as the unpredictables grow less newsworthy, the focus will increasingly be on an economy about to turn leaden under the massive weight of Obamacare, significantly higher payroll taxes and the end of the dead-cat bounce in housing.

We were briefly short the Diamonds earlier this  week, but with that petty distraction out of the way it's a good time to look at the cash Dow disinterestedly.  It sold off 100 points yesterday, but bears shouldn't get their miserable hopes too high, since the recent top easily exceeded the 13321 midpoint resistance of a bullish pattern that projects to 13524 (see inset). That last number affords DaBoyz plenty of running room for a one- or two-day romp, and you should hold that in mind, along with a bullish bias, in the days ahead. You can learn to do this stuff yourself, and it’s easier than you might think. Click here for details — and a $50 discount coupon.

Odds that stocks are in a bear market increased with last week's breach of a second 'external' low (labeled #3) on the weekly chart. As you can see (inset), the bearish impulse leg begun on November 5 from 13662 has now exceeded two 'externals' and a single 'internal', raising the imputed force of the move significantly. (Recall that to qualify as impulsive, a trend leg must exceed at least one internal and one external prior low or high.)  It's easier than you might imagine to out-forecast gurus who do it for a living. Click here for a free trial subscription that can start you on the road to making your own trading and investment decisions.

The 12742 target of the pattern shown looks like it will be worth bottom-fishing, even though the point B low is sausage. Its equivalent on DIA's chart is 126.95, and so I'll suggest buying four DIA December 128 monthly calls near there, stop 126.79. _______ UPDATE (November 12, 12:20 a.m. EST): Although the DJIA cash index bottomed at 12743, just one point from where I'd predicted, DIA's 127.28 intraday low did not follow precisely.  Under the circumstances, I'll assume nothing done on the order.

Although Hidden Pivot signs are very bullish for the E-Mini S&Ps, implying indirectly that my 14969 Dow target is still very much in play, the Dow Average itself has unfurled a yellow warning flag.  Notice how the recent high at 13661 fell just 5 points shy of its 13666 'D' target.  Moreover, the high that had preceded it -- 13339 on May 4 -- occurred precisely at its Hidden Pivot target, 13339. Taken together, these two bullseyes lend inarguable authority to the pattern itself as well as to the obvious fact that it is spent. Because it took more than two years for the pattern to play out, the 13666 Hidden Pivot should show considerable stopping power. However, if the Dow comes roaring back within the next couple of weeks, blowing through 13666, it would be unmistakable evidence that a 2000-point rally to 14969 is indeed possible, notwithstanding the economy's seeming slide back into recession.

During Wednesday's online tutorial session, we stumbled onto a potentially important rally target for the Dow with tradable implications.  Notice that the 13502 midpoint resistance does not conflict with any prior peaks and that the relevant price pattern has three sharp, single-bar coordinates. Bottom line, this is a compelling spot to look for a top of at least short- to-intermediate-term importance. Of course, if the Indoos should easily brush the resistance aside it could augur quite a bit more strength -- to as high as 14969!  More immediately, shorts can be initiated using the Diamonds, where the corresponding midpoint resistance lies at 134.84. A stop-loss no wider than 135.04 is suggested. If the order fills and survives for an hour, I'll provide further guidance via an update to this tout, a note in the chat room and an e-mail alert.  _______ UPDATE (September 14, 2:50 a.m. EDT): Thursday's strong rally not only exceeded 13502 by a whopping 71 points, it closed well above the 13502  pivot as well.  This is a shot across the bow of permabears who are skeptical that the broad averages could rally to new all-time highs with the global economy looking so punk. We're skeptical ourselves, but not so much so that we'll ignore clear technical signals that point higher.