Dow Industrial Average

The QQQ chart looked so strong when we examined it during yesterday morning's tutorial session that we segued to the Dow's charts to see whether there were any corresponding signs. What we found was a quite plausible bullish pattern that projects to as high as 14142, a 7% rally from these levels.  Especially interesting is the apparent consolidation following a brief flirtation with the pattern's 13089 midpoint.  The Indoos are now above it, having seemingly broken out, and we should keep this well in mind before we attempt to intercept buyers with short offers.  I'll also note that the last ten or so bars of the chart shown yield a bull target projection of 13386, just above May's high.

There's a bigger, bullish  pattern at work that goes back to early June's lows, but the one we should focus on for now projects to 13,003.  Its point 'B' high is legitimately impulsive, and that's why it makes sense to treat it respectfully. Notice that Friday's close was 30 points above the p midpoint. That's probably enough to ensure further progress toward the 'D' target, but if today's settlement is even further above p, that would all but clinch the move. Traders can short this move by buying four DIA September 126 puts if and when the underlying vehicle gets within 0.15 points of 129.51., the equivalent target. ______ UPDATE (July 16, 7:40 p.m.):  Yesterday's gratuitous chop has left my forecast and advice unchanged. _______ UPDATE (July 23): Last week's top at 12978 got us close enough to the target that we were able to short DIA by buying September 126 puts.  The broad averages have plummeted 400 points since, allowing us to take a partial profit on the puts, effectively reducing the cost-basis on those we still hold to less than 0.50 per. (They traded as high as 3.95 this morning.)

If you're looking for good reasons to be bullish right now no matter what the news, check out the well-hidden impulsiveness of the Dow's hourly chart.  The pattern shown is a dandy -- as persuasive as it is subtle -- for camouflageurs seeking to get long.  A point 'C' low has yet to become manifest, but if and when it does via the creation of an 'x' entry signal, I'd suggest using the first uptrending abc pattern you can find on the three-minute chart to get aboard in the Diamonds or another comparable vehicle.  _________ UPDATE (12:09 p.m. EDT):  It's fascinating how quickly an incipiently bullish picture has turned bearish now that today's nasty downdraft has negated the ABC rally I'd sketched hypothetically. The hourly chart now reflects a duel that bears are winning.  Although the larger ABC rally going back to A= 12480 on June 28 is still intact, the fact that it took two running starts to get past two sets of 'external' peaks recorded, respectively, on May 8 and May 10 tells. If the current selloff reverses to produce a nice point 'C' low, we'll want to short the midpoint very aggressively, for it would be a logical place for a bull trap to get sprung.

Noting the deranged spasms that numerous trading vehicles traced out yesterday, I checked the news to learn the ostensible cause -- in this case, the non-news that the Fed would continue Operation Twist through 2012. Gee, wow, yippee.  Once the knee-jerk histrionics have subsided we should expect the Dow to continue just a bit higher in preparation for its long-awaited swan dive. My goal is to short a top that will be distinctively recognizable as such after-the-fact.  The risk, of course, is that I will miss this top while greedily attempting to milk the rally for that last oh-so-satisfying inch. In attempting to catch that always-elusive moment, I'd welcome some help from chat-roomers, since the next thousand-point move in the Dow has home-run potential in comparison to whatever base-hits you may be pondering at the moment. To guide you in this class project, I'll note that my own forecast calls for a tradable peak at 12931, or perhaps 12973 if any higher. The provenance of each of these 'D' Hidden Pivots is shown in the accompanying chart.  As a matter or practice, however, we should already be looking for the downturn on charts of lesser degree -- but no later, in any case, than on a print below 12696, where the hourly chart would 'go impulsive' today. Please note as well that any shorts from above 12931 would be going up against a fresh bullish impulse leg on the intraday charts, implying that camouflage will be required to get this trade done.  Want to join in our group effort to nail the top?  Click here for a free trial subscription to Rick's Picks, including access to the chat room 24/7.

After May's hellish, thousand-point slide, the broad averages have been doing their best to test the patience of bears who thought life would be easy once stocks began to fall in earnest. In fact, after two weeks of feints, dives and half-bounces, traders' patience may be starting to erode.  This could provide fuel for one last head-fake, but once it's over, the Indoos will find it difficult to avoid fulfilling the C-D 'destiny' of the initial, impulsive breakdown. There's also the possibility that they'll fall straightaway, no head-fake. If this should occur, we could look for the initial plunge to come down to at least 12153, the p midpoint of the pattern shown. _______ UPDATE (June 3, 4:14 p.m.):  The Dow shredded the midpoint support noted above so effortlessly that further slippage to its 'D' sibling at 11585 now appears likely.  More immediately, the 11954 target of a lesser pattern (5-min, A=12490 on 5/31 at 3:40 p.m. EDT, B=12191 on 6/1 at 10 a.m.) can be used not only as a minimum downside objective for the near term, but also as a benchmark by which we'll be better able to judge the level of fear in the market. (Of course, it can also be used to bottom-fish or to take profits on an existing short position.) An easy breach of this Hidden Pivot support would be warning of panic selling to come. Alternatively, bulls would need to muster a thrust to at least 12724 over the next couple of days to mount a credible recovery. UPDATE (June 7, 10:03 a.m. EDT):  Set a screen alert at 12722.64, since that's when this so-far hoax-of-a-rally would become semi-legitimate.  That's a tick above a look-to-the-left peak recorded on the opening May 16. _______ UPDATE (June 13, 7:30 p.m. EDT): The hourly chart has

If permabears were hoping that the ups and downs since mid-March have been a last-hurrah distribution, they should ponder the Indoo chart I've included with this tout. This week's breakout above all previous recovery highs puts the blue chip average on course for a run-up to at least 13478, a 'D' target that lies about 1.4% above current levels.  Aggressive shorts -- very tightly stopped, as is our practice -- will be warranted at those levels, but probably not before. Stay tuned.

You gotta give DaBoyz credit for turning stocks around yesterday, since buyers appeared to have taken the day off. Nor was there much bullish energy as the day wore on – only the nervous drum beat of short-covering ahead of the final trading day of Q1.  It was all window dressing, to be sure, and although the Dow Industrials ended the day 20 points higher, the modest gain belied the dark magic that eventually spirited the blue chip average into positive territory.  After being down as much as 93 points early in the session, the Indoos began to inch their way higher around noon.  Of course, most of the gains came during the final hour, as is so often the case. Bears apparently had second thoughts about trusting Friday to be mellow, especially a Friday coinciding with the end of a fiscal quarter. With earnings growth apparently slowing down, will the broad averages continue to waft higher in the weeks ahead?  Perhaps. Whatever your view on the economy, keep in mind that there is no story, even weakening earnings, that cannot be spun bullishly. The optimists would interpret this as meaning companies have hit a wall on profit margins and will soon start hiring to keep up with sales. A darker view would hold that stagnant household incomes and still-falling home prices are about to smother the consumption side of growth. Yes, we too have noticed that credit card teaser rates are back down to 0.0%, sometimes with no origination fee. But the asset growth on which this seductive scam has always thrived is simply not there. ‘Time for Defense’ Meanwhile, not everyone thinks that higher stock prices are baked in the cake for Q2.  “Traders and investors should use Friday, March 30, to get defensive,” read an e-mail we

Will Tuesday's selloff turn out to be the usual bear trap?  To better answer this question, I've provided some precise benchmarks in today's tout for the Industrial Average.  The numbers are tradable as well.

The selloff on Tuesday was strongly impulsive, but we'll need to see how the C-D follow-through leg plays out before we can disdain it as a bluff.  One financial-page story noted that it's been a long, long while since stocks failed to bounce back after similar onslaughts in the past. Although it's certain that, one of these times, the bounce everyone is looking for will not come, for now -- fully three years into the Mother of All Bear rallies -- we'll have to continue to give bulls the benefit of the doubt. Regardless, we should watch for signs of fatigue at exactly 12859.77, the Hidden Pivot midpoint of the rally pattern (15-minute) a=12758.85 (3/7 at 10:30 a.m.); b=12842.17.  If it's breached, look for more upside over the near term to 12901.43, its 'd' sibling.  Either number can be shorted with the usual, preternaturally tight stop-loss or via camouflage. _______ UPDATE (March 9, 1:06 a.m. EST): The Indoos could still roll over in the manner suggested above, but the strength of yesterday's rally argues against this.  If the blue chip average were to close above 12997, bulls will begin the new week on Sunday with a running start.