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Dow Industrials looking tired

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Stocks are taking a rest today and it is not April fools joke. Despite economic data that continues to show an economic recovery in the works, Middle-east tensions look to be the overriding concern this first day of April.

We're currently monitoring the Dow Industrials (INDU) closely and a trade at 10,250 would be a second consecutive sell signal for this major market average and action here could weigh on investor psychology. The Dow Industrials has been one of the stronger averages, but is starting to look vulnerable to the 10,000 level of psychological support.

Dow Industrials Chart - $50 box

After triggering a triple-top buy signal at 9,950, then completing a bullish triangle at 10,050 the Dow Industrials jumped to as high as 10,673, but has since started to flash some signs of weakening. The current bearish count of 9,900 is very close to the "apex" of the bullish triangle dating back to mid- February and may tie in nicely with a test of the bullish support trend. Should the Dow trade the 10,250 level, I'd advise bulls in this market and other areas to be more cautious.

One thing I'm doing is identifying what look to be "strong" stocks that may pull back in sympathy/unison with a Dow pullback to the 10,000 level and at the same time identifying under-performing stocks in the Dow 30 as short/put candidates.

On the bearish list are shares of Walt Disney (NYSE:DIS) $22.17 - 3.94% and on the bullish side of things are shares of Johnson & Johnson (NYSE:JNJ) $64.65 -0.46% on a pullback near the $60 level.

While the Dow Industrials bullish percent ($BPINDU) from www.stockcharts.com is only comprised of 30 stocks, so each stock carries a 3.33% vote in this bullish percent, we will note that the current reading of 76.67% is in "overbought" territory and very close to some historical turning points of 80%. Good time to write some covered calls or snug up some stops in stocks that have treated bulls well in recent weeks/months.

Jeff Bailey
Senior Market Technician
Option Investor

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