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New retracement on Dow Industrials

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With the bulk of the major market averages all exceeding their bearish vertical counts, it has been increasingly difficult for bears to assess further downside risk/reward in some of their trades as it relates to "benchmarking" off of some major market average. The only major market average that currently has a bearish vertical count associated with it that hasn't been achieved, is the Dow Industrials. As such, today's reversal higher gives us a chance for the first time to calculate a bearish vertical count (may eventually be achieved and it may not) and set our retracement bracket at that level to give us other levels to monitor for potential support and resistance.

Dow Industrials Chart - Daily Interval

Yesterday's trade at 8,100 in the Dow Industrials (INDU) was enough to get the $50 box of the Dow back on a sell signal. Today's 3-box reversal higher at 8,200 then completed the bearish vertical count column and gives traders a downside risk level of 7,300. With retracement set at the spring highs of 10,663 and near the 7,300 at the low end, we find some decent correlation at the 50% level and 61.8% levels as it relates to historic trading. As such, we now that further sign of strength would be above the 8,762 level, but if the MARKET "knows" of the future and looks for further economic weakness, I'd expect some resistance at the 8,587 on a near-term basis. From there, a bears risk is more attractive with a stop just above 8,762 and near-term target of 7,945, or 19.1% retracement.

Other past bearish counts of the major market averages had the bearish count of the S&P 500 Index (SPX.X) at 960, S&P 100 Index (OEX.X) at 425, NASDAQ-100 (NDX.X) at 1,400 and NASDAQ Composite (COMPX) at 1,700.

Treasuries all closed at their daily highs, so equity bears may be a little jittery into the close ahead of tonight's earnings from Cisco (NASDAQ:CSCO) $12.41 +9.24%, which is looking like it might close above my $12.27 prediction.

Jeff Bailey
Senior Market Technician
Option Investor

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