ESU13

The point 'A' high shown in the chart is not of the highest pedigree, but I've used it anyway because it corresponds to a p midpoint pivot where the downtrend has stalled very precisely. As always, a move through clear support would imply more downside to the 'D' sibling -- in this case a 1634.50 target that corresponds to a drop in the Dow of about 150 points. Because the midpoint has actually been exceeded by a single tick, traders -- night owls, presumably -- should position from the short side. Shortly before 2 a.m. EDT Monday, there were some serviceable patterns that would have worked, but with no follow-through due to DaBoyz' apparent reluctance to trash the so-far overnight low at 1649.50. This suggests that they are waiting for news to drive shares one way or the other. If the initial move is higher I'd suggest fading it, since bulls have shown no gumption in weeks, and for good reason.

Yesterday's cascade transformed the summer's innocuous, oft-tedious shuffle into an impulsively bearish menace that seems unlikely to recede quickly.  Notice that the selloff exceeded three prior lows on the daily chart, two of them 'external'. This is a powerful 'impulsive' start for bears, and it will likely become still moreso next week if there is only a modest bounce to end this one. Analytically speaking, we'll be best able to judge the bear's ferocity by whatever follow-through occurs after an upward correction. For now, though, we can use 1645.75 and 1629.00 as downside targets. The first number would represent at 0.618 retracement of the record-achieving rally begun on June 24; the second, a 50% retracement of same.

At this point anything could happen on a given day -- including, as I've mentioned in Today's Action -- a short-squeeze rally to new record highs. Under the circumstances, the least speculative play I can recommend at the moment is to bottom-fish the 1673.00 target shown. This one could play out before the opening bell, so night owls should try to stay alert. Camouflage will nearly always be the method of choice for gambits like this one, but in this case, if you choose, you can put up a straight bid for a single contract at 1673.25, stop 1672.25. You'll be on your own if the order fills, but if the expected bounce from the target materializes, a trailing stop (or better yet, an impulse leg-based stop) should be deployed from 1676.25 on up. _______ UPDATE (9:59 a.m. EDT): Such delightful carnage as we have not seen in a long while has lopped 20 points off the futures so far today.  The cascade was interrrupted by a small bounce from exactly 1673.25, but the rally was fleeting and would have been of little value to scalpers. The intraday low has exceeded any target that could be extrapolated from the intraday charts, so we should probably just sit back and enjoy the selloff while it lasts.

Price action of late has been suitable for day traders only, and nimble ones at that.  Tuesday's regular session ended with an impulsive rally that projected to 1701.00. Because the entry signal has already been tripped, the presumptive opportunity will likely be solely for night owls. I'd suggest looking for camouflage on charts of 5-minute degree or less, and to expect to ride comfortably no further than the 1695.75 midpoint resistance. Given the stock market's stagnation during regular hours lately, DaBoyz are unlikely to push for the 'D' target unless helped by a combination of 'good' news and the utter absence of liquidity. If they succeed, look for a further push toward the major target at 1708.75 first broached here some weeks ago. My gut feeling is that a major top is forming, and that is reason enough to attempt shorting -- again, via camouflage -- near that price. ______ UPDATE (8:07 p.m. EDT): Minutes after this tout was published the futures dove beneath the point C low. This will have little bearing on the instructions given above. In fact, after stopping out bulls who had been piling on the bandwagon for the last five hours, the second rally attempt may provide us with a better handhold.

An important Hidden Pivot target at 1708.75 broached here a couple of weeks ago has survived so far, although the selloff since has not exactly been the stuff of bears' dreams. Even so, we can look forward to a bit more weakness today, down to the 1674.00 target shown.  If Mr Market is about to have congestive heart failure, or perhaps a well-deserved stroke, we should look for sellers to turn the target into suet quickly. Even so, the so-far corrective pattern looks good enough to try tightly stopped bottom-fishing there. Camouflageurs should initiate the trade on the one-minute chart or less, notifying me in the chat room of any fills. If you want to skip the  camouflage, bid 1674.25 for a single contract, stop 1763.25. ______ UPDATE (10:57 a.m. EDT):  Oh well. Mr Market once again failed to succumb, turning higher from a low of 1675.25 that cheated us out of a nice buying opportunity.  Is it possible the trained chimpanzees on the trade desks at Goldman and J.P. Morgan know how to identify the most obvious Hidden Pivots, such as the one given above, and are front-running us?  _______ UPDATE (August 12, 9:01 p.m. EDT): My outlook is little changed, although bears will need to respect the bullish impulse leg that resulted from yesterday's gratuitous ups and downs. It projects to 1692.25, but that Hidden Pivot is not very enticing as a place to get short, since it equals a key 'external' peak recorded Friday on the way down (see inset, a new chart).  Night owls will notice there's a possible buying set-up in the ABC pattern that was taking shape Monday evening.

Perhaps it will take more than a stake through the heart to kill this institutionally crazed bull market, since, so far at least, it would appear that the steep downturn in corporate earnings and an abrupt end to the Fed-sponsored real estate boom may not be enough to get the job done.  Still, there is reason to hope Mr Market is in the early stages of congestive heart failure, or perhaps a stroke, since the S&Ps have yet to take out my 1708.75 rally target -- a major Hidden Pivot -- after a week of trying. Another hopeful sign that the bull may be in the process of dropping dead is that the short-squeeze rally that recouped earlier losses yesterday failed to generate a bullish impulse leg on the intraday charts.  Dare we hope that stocks will finish the week with a delightfully nasty and well-deserved plunge?  If so, look for settlement near the 1674.00 correction target shown.  If it happens with a couple of hours left in the session, traders can bottom-fish there with a micro-tight stop-loss commensurate with your skill and daring.

All of the hard work that bears put into pushing the futures a few measly points lower on Wednesday has been negated, DaBoyz having effortlessly recouped the day's losses and then some in the volumeless, antigravity atmosphere of the night session. If you've been yearning to short this hoax because of its close proximity to a longstanding rally target of ours at 1708.75, you should give up that impossible dream and simply trade it from the long side. In that regard, night owls should stick with the subtlest, most picture-perfect impulse legs they can find on charts of 5-minute degree or less. As of around 10:12 p.m. EDT, there was nothing to motivate.  However, I've highlighted a look-to-the-left peak that could provide an unbeatable camouflage buying opportunity if things play out according to our simple rules. In practice, that would mean a shallow pullback on the very lesser charts from no higher than 1694.25  If that occurs, you shouldn't hesitate to jump on the trade.

It's usually easy to predict where the futures are headed next, at least over the short-term, but leveraging this knowledge can be diabolically difficult. Two traders comparing notes in the chat room yesterday afternoon picked their spot to get short, but all they got for their trouble was aggravation when the futures took a tortuous path lower rather than the path of least resistance. Now, early Wednesday morning, we see quite clearly that the futures will fall to 1683.25 if they take out a midpoint support at 1689.00 with which traders have been playing toe-sies for more than an hour.  The camo short from that number should work nicely for night owls, since the futures seem to deliver most reliably at hours of the day when there are relatively few traders around to take advantage.  Even then, the diligent night owl might go bleary-eyed trying to reap the maximum gain here. If it helps inspire you, 'the max' works out to around $300 per contract -- a good night's work, even if it means having to fight off asphyxiating boredom. ________ UPDATE (10:12 a.m. EDT): It only took ten hours, but the futures have finally fallen to our target this morning, yielding a profit of about $400 per contract if you were able to get short as advised.  The actual low so far has been 1281.75, a small overshoot of our number that has bearish implications going forward.

As I've noted in 'Today's Action', merely knowing where the S&Ps are likely to top does not necessarily make it easy to short the little sonofabitch.  The futures have spent the last few days playing cat-and-mouse with our 1708.75 target without actually touching it.  Equally frustrating is that pullbacks have been shallow, suggesting we are seeing a consolidation rather than a distribution.  Even so, I'll suggest sticking with the camouflage shorting strategy if you have the patience. Your odds will be best if you initiate the trade within a few ticks of the target rather than several points below it. And while you're waiting, consider taking a small shot from the long side, since any profits you make on a rally toward 1708.75 could be used to cushion a wider stop-loss for the eventual short.  An example of a set-up that traders could bottom-fish without camouflage and using a stop-loss as tight as two ticks (!) is shown in the accompanying chart. _______ UPDATE (11:21 a.m. EDT):  The futures have tanked this morning after having gone no higher than 1703.50.  We were well prepared for this drop, so it's possible some of you may have gotten short. If so, please let me know in the chat room and I'll establish a tracking position for your further guidance. For now, though, you should cover half the position and let the rest ride with a very generous stop-loss based, perhaps, on an impulsive rally on the 5-minute chart.  At the moment, that would imply an uncorrected pop to 1695.75.