Dow Industrial Average

The Dow looks primed to fall at least another 750 points, so it's no time to let your guard down. Thursday's obligatory bounce came from just inches beneath the 24,965 benchmark I'd proffered Wednesday night as a minimum downside objective, but it didn't get very far. By day's end the Indoos were falling anew, on track to hit the 24,298 target shown. That's a Hidden Pivot support of intermediate degree, and if it fails to contain the selling, expect more slippage to at least the 23,997 low recorded in June. We'll be looking for a 'counterintuitive' bounce from somewhere near there, so stay tuned to the chat room for real-time guidance if you're keen to bottom-fish. ______ UPDATE (Oct 14, 4:08 p.m.): The bounce off Friday's sold-out low generated a 'mechanical' short at 25,284 (i.e., the green line shown in the chart), stop 25,612. The trade is predicated on the 24,298 target given above. If and when the Indoos slip beneath Midpoint Pivot p=24,955, particularly if they close beneath it, that would imply more slippage straightaway to the target.

Twelve days ago, on Facebook and in my chat room, I recommended buying the Oct 19th 30/35 vertical call spread for 0.50 or less. The Facebook video was presented under the headline Leveraging an October Disaster with Cheap Calls, and you can view it by clicking here. The spread subsequently traded as low as 0.21 before stocks began to fall last week, launching the position skyward. It doubled, then tripled in value earlier in the week, shooting up as high as 3.00 today with the S&Ps in a 100-point dive. Anyone who followed my simple guidance could have made between five and fifteen times his or her original investment. As is my custom, I recommended cashing out half of the position when it doubled in value, allowing subscribers to hold the remainder for a risk-free swing at the fences. I also recommended keeping one or two contracts until expiration day, since, if VXX is trading above 35 at that time, the spread would be worth its maximum value of 5.00. To all who took a position based on my guidance, good luck! _______ UPDATE (Oct 12, 9:08 p.m): VXX ran up to 37.38 around mid-day, making the last remnants of the spread an easy sale for 4.80 or higher. Subscribers who held out for top dollar should take some their gains and splurge on something you'll enjoy.

The Dow has collapsed from a high that fell just shy of the 27,251 target I'd drum-rolled. By day's end the selling had slightly exceeded a key low at 25,608 recorded on August 23, although not by enough to rule out a possible 'counterintuitive' bounce from these levels. Failing that, however, we should expect the Indoos to home in on an even more important low at 24,965 recorded two months ago. At that point the Dow will have shed 7.3% of its value since hitting an all-time high eight days ago at 26951. Worst case, Hidden Pivot targets aside, would be a test of the 23997 low carved out on June 28.

I've shown you today's chart before (see inset), and some of you may remember it because it is more than a little threatening. But with the Indoos just a hair from reaching the potentially very important rally target featured in the chart, a timely reminder seemed appropriate. The target is a clear and compelling Hidden pivot resistance at 27251 that lies exactly 299 points above the 26,952 record high achieved a week ago. The high missed our benchmark by just 1%, and while that may not sound like much, I would expect the Dow to get even closer to it before any serious downturn could begin. Not to psychoanalyze the chart too deeply, but the Dow appears to have blasted off recently without building a sufficient base for a push to 30,000 or higher. I'm not ruling out such a move eventually, but it would be more easily accomplished if a hellish dive were to occur first, scaring the bejeezus out of bulls. A head-fake to 27251 would set up this kill shot nicely, since the Dow would be high enough above the old peak to turn traders and investors even giddier than usual. It is of course possible that some are already giddy enough for DaBoyz to pull the plug, since the Dow technically broke out when it exceeded 26,952. Traders interested in leveraging a possible sharp reversal from 27,251 with entry risk tightly controlled should stay tuned, especially to the chat room, for guidance in real time.

A subscriber who qualifies as a Hidden Pivot ace broached a Dow rally target at 40,000 Thursday in the chat room, but I'm not keen on encouraging such speculation. Applying Hidden Pivot analysis to the long-term picture, I can make a case for a move to 34,450, but no higher. Even then, bulls would need to get past two formidable Hidden Pivot resistances at lower levels. They lie, respectively, at 27,251 (just 600 points above current levels!); and at 28,897. Either looks sufficient to turn back the bullish herd, at least for a while, and both are capable of ending the bull market. A Fibonacci Trick The ace Pivoteer, David Isham, has filled in for me at times and knows his stuff. His high confidence in the 40,000 target is based on the fact that it would represent a 1.61 [sic] Fibonacci extension of a regular Hidden Pivot target. He says there's plenty of evidence to support the use of the 1.61 [sic] calculation in conjunction with Hidden Pivot levels. While this may be so, it doesn't justify ballyhooing Dow 40,000 when there are such compelling targets at lower levels.  That said, if my 28897 pivot were to be decisively penetrated I'd become a raving bull, at least until 34,450 was achieved. And if that last resistance were to get bulldozed, I'd join David's camp enthusiastically. But there is little practical value in focusing on a 40,000 target at present -- unless, perhaps, you are in the guru business and desperate to hype something...anything, to get attention.

DaBoyz squeezed the Indoos hard enough Friday afternoon to recoup two-thirds of earlier losses, but they'll need to do much better on Monday to keep the rally going. Specifically, it would take a push exceeding 25,332 to turn the hourly chart impulsively bullish. That's where a technically significant peak was made on the way down last Wednesday. Looking at a much bigger picture, the failure of the Dow to surpass the 25.449 'external' peak recorded on March 12 (see inset) at last week's high is telling. Just 50 points higher and bulls could have refreshed the bullish energy of the daily chart, generating a robustly bullish impulse leg for the first time in more than a month. Instead, they've let the blue chip average roll down in tandem following a trend failure similar to one that has developed in the S&Ps.

I'd expected stocks to fall as the week began because of tariff-war fears raised by the G7 summit, but traders were clearly unfazed, pushing the Dow to a small net gain on Monday. At this point I'd rate the 25803 target shown a 90% shot to be hit within the next 3-5 days, if not sooner.  It has been aired here before, but last Wednesday's pop past the red line, a midpoint 'Hidden Pivot', all but guaranteed a successful finishing stroke. If there's a pullback first to the red line, that would generate a 'mechanical' buy signal with a 24,765 stop-loss. However, we can greatly reduce the entry risk by executing the trade 'camouflage'-style on the one-  or three-minute bar chart if the opportunity arises. A retracement to the green line -- unlikely, in my opinion -- would trip a mechanical buy signal even more compelling than the one detailed above. It would be so juicy, actually, that I could even see using options in DIA to play the expected reversal. Stay tuned to the chat room if you care. _______UPDATE (June 12, 6:04 p.m. EDT): Buyers will need to pick up the pace if they're going to push this brick to 25803 by week's end. One possibility is that the non-news due out from the Fed tomorrow will nevertheless goose the markets, leaving residual energy to finish out the week.  Another possibility is that the broad averages will remain comatose for longer than we might prefer._______ UPDATE (June 13. 4:52 p.m.): The session ended with a dive. If sellers follow through on Thursday, chances of the Indoos hitting 25803 over the near term will collapse. Indeed, the Dow could be on its way down to 23,298, a 1900-point fall, or even to 22,947. _______ UPDATE (June 14, 10:48 p.m.): 

I'd made AMZN the focus of my analysis yesterday, stipulating that as long as it continues to move higher, so will the stock market. But while AMZN spent the day cavorting with a 1699.04 bull market target I'd deemed crucial, the Dow bolted higher, leaving no doubt that the broad averages are headed higher as well. To be more precise, the Dow is bound for the 25803 target shown, implying a further rally of 657 points is coming. I'd say this is 90% probable, given the way buyers blew past the 25,025 midpoint Hidden Pivot shown in the chart as a red line. A further implication is that if the Indoos first pull back to 24,636 (i.e., the green line) without having exceeded 25,300, it would create a great opportunity to get long there via a 'mechanical' buy, stop 24,246.  There is one more important thing to be inferred from the chart: a move to the 25803 target would slightly exceed the very important peak at 25,800 recorded on February 27, reaffirming the bullish energy of the daily chart. If this occurs, we will continue to go with the flow, but with diligent attention to such small details as could reveal a bull trap. _______ UPDATE (June 10, 10:51 p.m. EDT): Wall Street is not going to like the news emanating from the G7 summit, so be prepared for weakness as the week begins. However, traders please take note: If the Dow should fall to the green line at 24,636, it would trip a very compelling 'mechanical' buy signal.

The Dow Industrials held up surprisingly well on Thursday, considering the scary news about tariffs. Two months ago, talk of a global trade war sounded like just another ginned-up story from a news media desperate for headlines. In fact, however, Trump's latest levies, which effectively cancel existing exemptions for steel and aluminum imports from Canada, Mexico and Europe, are sufficiently punitive to have provoked an instant, $12.8B retaliation by Canada. It was characterized as "the strongest trade action Canada has taken in the post-war era" and will take effect on July 1, matching the U.S. levy dollar-for-dollar.  The tariff will add 25 percent to the cost of steel and 10 percent to aluminum, meaning consumers will feel it down to the level of canned soups and key rings. The fact that the Dow Average managed to close down a mere 250 points suggests that the money-managing chimpanzees who are paid princely sums to throw good money at a relative handful of U.S. stocks are as oblivious to events in the real world as their simian progenitors. My hunch is that they will catch up with the bad news in the days and weeks ahead with a string of days like today, punctuated by an occasional really bad day. Even so, from a technical standpoint the worst I could see would be a nearly 2000-point drop to 22544. I'd suggest jotting that number down if you want to get ahead of it.