Dow Industrial Average

The weekly chart shows how yesterday's plunge created a bearish impulse leg by exceeding the required internal and external lows.  The price bar itself doesn't look like much in the context of this very big picture, but it is ominous nonetheless that it has followed a bull cycle that failed to surpass the 13187 peak from May 2008.  By definition, that means the entire Mother of All Bear Rallies from the 2009 low is merely corrective relative to that peak.  The resulting, bearish ABCD pattern gives us a Hidden Pivot midpoint to use for a minimum downside target: 9542, representing a further fall of about 16 percent. To be sure, there are lesser uptrends yet to play out against the larger, bearish tableau; however, we now have an especially compelling reason to look for ways to get short at their respective midpoints and 'd' targets.  Camouflage, anyone?

It was Christmas in July yesterday, statistically speaking. Jobless claims fell last month, private businesses hired more workers than had been expected, and retail activity picked up enough to get vendors talking about reining in discounts. Wouldn’t that be swell for them!  By the time actual Christmas rolls around, we could all be paying retail – retail! – for all kinds of great stuff, putting America back on track for the kind of sustained recovery that might last until, oh, maybe early January.  One thing’s for sure: Shoppers won’t have much trouble binging beyond their means if they’ve been getting the same offers from the banks that we have recently. Balance transfer loans at rates under 2% now seem to be the norm, even though it wasn’t too long ago that the fees were more in line with what Frankie the Camel charges guys who are keen on preserving their kneecaps. Kneecaps were not even a distant concern on Wall Street. Ebullient as ever and wildly oblivious to the discouraging word, speculators greeted the news by embracing risk as though tomorrow would never arrive. The Dow Industrial Average was up more than 120 points shortly before the close, and although it sold off slightly in the final moments, shares looked poised for yet another risk-embracing spree into week’s end.  At the bell, the blue chip average had gained nearly half of the 900 points we predicted here on June 30.  Speculators’ devil-may-care lunge for shares was especially impressive given that the price of oil --- and therefore the future price of nearly everything else – was in a steep climb, extending a rally that in less than two weeks has tacked $10 onto the price of a barrel. That can add up in a world that consumes 80 million barrels

Not only did Friday's short-squeeze rally close above an important midpoint resistance at 12523 identified here earlier, it also exceeded a prior peak from June 1, refreshing the bullish impulse on the daily chart. Taken together, these accomplishments will shorten the odds of an eventual move to a 13182 target previously noted.  Also, because three more 'external' peaks lie within 200 points of here, any strong rally as the new week gets under way could make the move to 13182 all but unstoppable.

I've alluded in today's commentary to a 13182 target, but this chart shows its provenance in greater detail.  Notice that the 12523 midpoint pivot, which is about as high as I think the Indoos could actually get, lies somewhat shy of  May 31's mini-Matterhorn at 12574.  However, if a thrust were to exceed that last number, as well as the 12633 peak just to the left of it, that would all but clinch the move to 13182, notwithstanding the daunting resistance of early May's 12875 peak.

The Indoos' last big upthrust missed a 13017 target by 141 points (see inset), but the failure was understandable, given the imposing presence of May 2008's structural resistance at 13137. The subsequent pullback has homed in on the 12286 midpoint pivot, and we shouldn't be surprised if the Dow finds a groove oscillating around that number for the next few weeks. A weekly close above it would be reason to look for camouflage entry opportunities on the intraday charts.

Although Monday's tout for the E-Mini S&Ps implies a fall of about 200 points in the Dow, the DJIA's chart itself suggests it could be significantly worse. I've flagged a pattern that projects to at least 11633, exactly 319 points below Friday's settlement price.  The midpoint support here lies at 11908, so if the Indoos open a mere 44 points lower on Monday, they will be on thin ice, vulnerable to a further fall of 275 points. Please note that the pattern itself is a good one, with single-bar price points at all three coordinates and a point 'B' that has properly exceeded an important prior low. Those factors lend a high degree of confidence to the target itself.

The thimble-rigging, conniving spook-job exposed by yesterday's giddy opening bar failed to get it past Monday's 12643 high, adding to the suspicion that buying interest is nil, even among erstwhile panicky shorts. Since there is even less interest in selling, however, we should expect DaBoyz to continue to hold this gas-bag aloft until the next crumb of short-squeezable "news" hits the tape.  Bears are advised to continue hibernating peacefully unless 12719 is exceeded to the upside. If you're curious as to why but don't subscribe, click here to access all of Rick's Picks features and services free for a week.  This includes access to a 24/7 chat room that draws combat-hardened traders from all over the world.

Although today's E-Mini S&P forecast predicts lower prices, a cursory look at the Dow's hourly chart obliges us to give the begrudging benefit of the doubt to bulls, since almost no technical damage has resulted from the scuddling price action of the last two weeks. Bulls would regain control on a thrust today exceeding 12810, but otherwise we should presume the correction has at least a little ways to go, to a minimum 12461, or possibly to 12427 if any lower.

Friday's low came within four ticks of a calculated low (see chart), so perhaps we should dogtail the Dow for a while as long as it's being so cooperative. The blue chip average looked bound for at least 12356 at the close yesterday, although that Hidden Pivot's dubious, sausage-y pedigree makes it unsuitable for shorting.