Dow Industrial Average

Violent short squeezes are the only mechanism DaBoyz have left to sustain the illusion of a bull market before the clock runs out on their crooked game in 2015. A New Year's mood change is surely coming on Wall Street, since investors will have to face the blunt reality that this is no time for the Fed to tighten. China's bubble is imploding, and an out-of-control dollar is about to kill U.S. exports and the earnings U.S. multinationals. As you can see in the chart, DaBoyz' best efforts to keep the game going have accomplished little more than creating a very un-bullish series of lower highs and lower lows. Seasonality should have made it easy for portfolio managers to push the broad averages to new record-highs in December; instead, even with holiday tailwinds at gale force, they've failed. On Friday, the Dow looked bound for the 17076 target shown (see inset), a Hidden Pivot support, when the closing bell brought an end to the savage sell-off.  The Indoos ended the week too close to the target to offer a good shorting opportunity on Monday, but traders can attempt bottom-fishing with a tight stop. I would ordinarily suggest using DIA for this purpose, but it hit a corresponding target at 170.87 when trading ended last week. The target is both compelling and instructive, and it can be found on the hourly chart using these coordinates: A=179.67 on 11/4; B=171.30 on 11/13 (after-hours); and C=179.04 on 12/2.

The 18028 rally target shown is slightly below the 18035 target we'd been using. It figures to be a high-odds spot for a precisely tradable top, since it is closely equivalent to the 2126 target we've held in prospect for the E-Mini S&Ps. The difference is that if the respective targets are reached, the S&Ps would be at new record highs while the Dow would be more than 300 points below them. We'll treat the two targets discretely, since it's conceivable that an important top for the stock market could occur with the formation of a 'divergence' like the one I've implied.  For purposes of getting short, I'll recommend buying near the money DIA puts expiring in three or four weeks if and when the cash DJIA gets within 10 points of 18028.

Using a bullish pattern in the E-Mini S&Ps, I projected a 700-point rally in the Dow if certain criteria were met. The bullish pattern shown (see inset) will not quite get the Indoos there, but they'll be about 80% along the way if they hit the 18035 Hidden Pivot resistance near the top of the chart. A rally to at least p2=17829 seemed all but certain when the closing bell rang on Wednesday, but traders will have to interpolate using the E-Mini Dow to get aboard overnight.  Thereafter, DIA can be used Thursday morning to catch a ride from 17829 to the 18035 target, or perhaps even higher.

During the Hidden Pivot Webinar, I present a slide entitled 'My Epiphany'. Graphically, it tells the story of why, when my outlook is uncertain, I tune out everything but the mechanically objective information on my charts. Notice in the inset within the large chart that a rally begun in March 2003 (green arrow) culminated a year later with a thrust that slightly exceeded a key 'external' peak (at 10673) recorded a year earlier. This was undeniably bullish, and I could not ignore it even though the opinions I was expressing in print at the time were as bearish as could be.  The chart said not only that the Dow was not about to collapse, but that a 3000-point rally to just above 14000 lay just ahead. Cut to October 2015. We see in the large chart a rally currently in its third month that is almost identical, albeit in miniature, to the one in 2003. The implication is that, bearish though I may be, I would have to embrace the bullish case, at least for the time being, if July's 18137 peak is exceeded.  So far, the powerful short-squeeze from August 24's low has gone no higher than 17978 -- 334 points shy of the bullish threshold. Will it get there? Only time will tell.  My short-term outlook happens to be bearish at the moment, but I've set an alert to make certain that I'm not asleep at the wheel if and when 18312 is topped. Stay tuned if you want to keep on top of any further developments.

The modest rally on Friday achieved an almost exact 0.618 Fibonacci retracement of the Dow's 2981-point decline from 18351, the all-time high recorded in May. The intraday peak hit 17220, eight points above the precise 0.618 mark at 17212. The overshoot is not technically significant as yet but would become so if the Indoos make further headway on Monday. They were on track when the week ended to hit 17295, a Hidden Pivot target 80 points above Friday's close that can be found on the 30-minute chart, where A=16765 on 10/7. A 'mechanical' buy may eventually be possible following a decisive push past 17193, the secondary pivot, but you should attempt this only if you thoroughly understand the simple rules governing 'mechanical' trades.  Otherwise, if the opportunity should develop, stay tuned to the chat room for guidance in real time. _______ UPDATE (7:29 p.m. ET): No change. The Dow edged higher on a day marked by asphyxiating tedium, hitting a 17235 high that exceeded Friday's by a marginal 15 points. _______ UPDATE (October 20, 6:43 p.m.): With Tuesday's thrust to 17265, the Dow has now traded 53 points above a 0.618 retracement, implying the Fibo resistance has been compromised. Strictly speaking, a pullback to p2=17193.53 would be a 'mechanical' buy, stop 17158.99. In practice, however, I'll recommend a 'camouflage' entry if a set-up takes shape following a print down to 17193.53. The target would be 17295.48 (see inset, a fresh chart)._______ UPDATE (October 22, 11:07 a.m.): This morning's vicious short squeeze, triggered by utterly meaningless remarks from Draghi,  has easily surpassed 17295.  Slide backward to create a new point A low at 16943, adjust B-C higher by one click, and the new target is...17524.  In this case, p=17338 has already been decisively exceeded, implying minimum upside over the near term

Enthusiasm is high in the chat room for shorting this hoax, but I'm not so certain myself. A key question is whether the dirtballs who manipulate the stock market for a living have lost control. I don't think so.  Last week, over the several days when the Dow sold off more than 2000 points, there was only a brief period when stocks were actually plummeting. This occurred in the first hour following last Monday's avalanche-like opening. The hard selling that had proceeded this washout was more or less orderly, with prices ratcheting lower as though the powers that be were methodically trying to find a bottom. When they did, on Monday, with a flood of climactic selling, they made good use of the low, with a trampoline bottom and a memorable short squeeze. We saw shares bounce twice over the next two days from lows well above Monday's, and then on Wednesday the chop mutated into a second powerful short squeeze. The week ended with the apparent consolidation pattern shown. It has been shallow enough that bears should think twice about getting aggressively in its the way. Looking at a bigger picture, permabears should remain open to the possibility that stocks will be trading at new record highs in another month or two. Regardless, I'll continue to call 'em exactly as I see 'em, suppressing my own, bearish bias with whatever coldly mechanical evidence I can find on on the lesser charts.  At the moment, that means paying heed to the bullish pattern shown. Although we should expect a stall at or very near the 16763 midpoint pivot shown, a decisive move through it -- or even more bullishly, a two-day close above it -- would telegraph more upside over the near term to the pattern's 17203 D target. It'll

The bearish ABC pattern shown yields the maximum downside target I can project using the intraday charts. If the 16343 target is achieved, it would imply a further fall of 118 points from Friday's settlement price and an 11% decline from the all-time high achieved in June. Regardless, the plunge has already done significant technical damage to all charts up to the level of the daily bars. It could grow still worse if the plunge were to continue unabated, surpassing last October's watershed low at 15855. That would generate the most powerful bearish impulse leg we've seen on the weekly chart since the bull market began in March 2009.  We'll have a good opportunity to assess the bear's strength once we've seen stocks bounce and the downtrend resume. If that leg is weak and bounced sharply from its midpoint pivot, it could signal the return of the bull, along with a possible shot at new all-time highs.  All of this remains speculative at this point, but we should know before long whether last week's selloff is just a correction or the likely start of a powerful bear market.

When a trend exceeds a Hidden Pivot target, we usually infer that it will continue, often following a reaction move in the opposite direction. Notice in the chart that the Dow Industrials decisively exceeded a 17,251 downside target this week that has been nearly three months in coming. The target itself is moderately compelling, since the pattern that produced it is a good one although not perfect. According to the Hidden Pivot Method, the most reliable patterns begin with A-B impulse legs that have exceeded two prior highs or lows; in this case, the A-B leg exceeded only one external low. Still, the D target should have evinced at least some support in the form of a visually obvious bounce. The fact that it didn't and that the eventual bounce came from a low 125 points beneath the target implies there will be another leg down, possibly of greater magnitude than the one that has occurred so far. The bearish implications of this picture would increase significantly if the Dow were to breach the 'external' low at 17037 recorded last February without having rallied above this week's so-far high, 17629. At that point we would have a textbook impulse leg with enough imputed power to imply that a bear market had begun. I believe it already has, based on late April's peak in the NYSE advance/decline line and some other technical factors. However, a swoon exceeding 17037 would offer strong confirmation of this. Accordingly, I've set an alert on my chart at 17037. From a trading standpoint, we will look to short into rallies like Wednesday's, using their midpoint pivots and D targets and tight stops. By that criterion, trading in DIA or with put options, Thursday's high was a short at 'p' off this pattern from the 15-minute chart: 

Every Indoo rally during the last two months has gone nowhere, creating a bearish picture of descending highs and lows on the charts. If the short squeeze that got under way Sunday night is similarly destined for failure, we might expect it to top near the trendline shown. It comes in around 18094 today, with a downward slope of about 5 points per day. I've highlighted a similar trendline for the E-Mini S&Ps, but this one is much closer and could be hit today if there's any follow-through to yesterday's waft. You can use the target to get long or short, depending on how aggressively you trade. If you want to employ put or call options, I'd suggest interpolating with DIA, for which a comparable target lies (today) at around 180.70. _______ UPDATE (9:46 p.m. EDT): Using my target, adjusted intraday to 18086, a subscriber reported getting short just off Tuesday's high. A tight stop is advised, since my E-Mini S&P forecast calls for at least somewhat higher prices. I'll establish a tracking position if I hear from at least one more subscriber who got short.