Dow Industrial Average

We could see a bearish divergence if the E-Mini S&P pushes past a 1208.00 peak noted in today's tout but the Indoos do not do likewise. "Likewise" in this context implies nothing less than a 749-point rally, since that's what it would take to create a bullish impulse leg on the weekly chart. If this is what in fact occurs, we might let our own "Dow theory" dampen our expectations for a runaway short-squeeze, post-elections. A recalcitrant Dow would not only argue against it, it might be the very force that restrains the S&P 500 from going crazy.

Inveterate bears will want to pay close attention to the Industrial Average in the weeks ahead, since it is capable in theory of creating a quite powerful bullish impulse leg on the monthly chart with a rally of just 609 points. That is the distance separating the two peaks shown in the inset, and if that distance should be traversed by a thrust that's unpaused once peak #1 has been exceeded, it could spell a long exile for stock-market pessimists.  My gut feeling is that we will see no such birthing of a long-term bull; rather, and at best, the Dow will poke above the first peak and pull back for at least two months before even feinting toward the second.  More immediately, the Indoos have exceeded by 34 points a clear target at 11019 on the daily chart, implying bulls will remain in charge till election day or longer.  Any rally developing this week would be unchallenged up to 11197 by structural resistance, but the way things have been going, we could see such a test this week.

The Dow is poised to fall to at least 10602, or to 10574 if any lower.  The calculations come from impulse legs that are less than stellar if subjected rigorously to our rules, but the patterns of which they are components are so pretty and compelling that it seems unlikely they could miss. A tradable bounce should therefore be expected at either pivot, but you'll be on your own if you want to improvise a bottom-fishing (or shorting) strategy. ______ UPDATE (1:57 p.m. EDT): The lunatics and broad-tossers are in charge today and have taken the Dow higher rather than lower. My minimum upside target is 10993, and it looks like a lead-pipe cinch because of the ease with which buyers obliterated its sibling midpoint at 10817.

Dragged kicking and screaming appears to be the only way the Dow is about to go down, but perhaps we can will it to do so simply by despairing of the very possibility. At any rate, the Indoos spent the day hosing traders who waited patiently to buy at 'D' retracement targets yesterday.  That suggests the blue chip average wants to go higher, but we'll make it earn our trust by stipulating that a pop today to at least 10787 (see chart) is needed to kick off a sustainable rally.

The Indoos have lagged the S&Ps and must still take on two prior peaks before shorts are forced to throw in the towel. We'll use the 10920 peak from May 13 as our benchmark, bearing in mind that, to effect the strongest bullish signal possible, the rally must be uncorrected on the intraday charts once it exceeds the 10720 peak of August 9.

All of last week's feeble thrusting did not succeed in pushing the Indoos past August 17's 10480 high, so let's not get too excited if it finally happens today. Although that would create a bullish impulse leg on the daily chart, it would not dispel the doubts that seem to be weighing on the blue chip average. A pullback from slightly above 10480 would offer a short-term buying opportunity nonetheless, so traders should look for camouflage in such circumstances.  The accompany chart shows one promising way this could unfold. _______ UPDATE (12:28 p.m. EDT): The opening-bar short-squeeze was so hysterical that we didn't have a chance to get long on such subtleties as I have described above. Detumescence off the morning's so-far high at 10567 has been swift and punitively steep for anyone who bought the opening.

Yesterday's gratuitous ups and downs seemed to suggest that although buying enthusiasm is non-existent at the moment, selling completely dries up when the Dow is down a hundred points.  The blue chip average had been maneuvered there Sunday night -- a change from a summer-long pattern that has given us mostly Monday-morning short-squeezes and opening gaps. We can use a Hidden Pivot target at 10088 if stocks hit an air pocket, or even 9843 if it's breached on a closing basis, but there is no compelling evidence to suggest that such a selloff is imminent. Alternatively, buyers would need to print 10426 today to create a bullish impulse leg on the hourly chart.

Even considering last week's selloff, bulls would seem to hold a very small edge at the moment, since they slightly bested bears in the "duel" evident in the 240-minute chart. Notice that the rally to 10720 on August 9 exceeded one internal and one important look-to-the-left external peak. It was followed by a decline that exceeded two external lows, and although it's a close call as to which feat was more impressive, I'll give a slight edge to bulls.  That doesn't mean we should expect the Dow to romp to new highs -- only that we should be prepared for a possible head-fake into no-man's land before the blue chip average dives anew.

The Indoos may have seemed resilient yesterday, but they got shoved down far enough intraday to extend Wednesday's selloff into a bearish impulse leg on the daily chart (see inset).  Predicting where to get short for the next leg down would be a shot in the dark at the moment (i.e., Thursday night), since the Dow could rally to as high as 10474 before it sevens out. In any event, I'd suggest using the 15-minute chart to jockey into position to short the 3- or 5-minute chart via "camouflage."  The "15" divulges, for one, that yesterday's 10269 low still has 50 points to go before it reaches a clear (clear enough to bottom-fish with a very tight stop-loss, if you please) target at 10219 (A=10678 on August 10 at 4 p.m. EDT; B= 10428 on August 11 at 10 a.m.)