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Dow's break at 8,400 bearish

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Today's trade at 8,400 in the Dow Industrials has the point and figure chart showing supply beginning to outstrip demand and the violation of a triple-bottom should have market technicians turning further defensive in the Dow and other major indexes.

The Dow Industrials is a major index that plays an important role in investor psychology and can greatly influence market participants buy/sell decisions. Today's trade at 8,400 should strengthen bearish trader's conviction and begin bringing greater supply of stock to the market. Not just from bears shorting, but also from bulls further liquidating positions and protecting profits from the October/November lows.

Dow Industrials Chart - $50 box

Today's trade at 8,400 has downside risk being assessed to the bearish vertical count of 7,850 compared to resistance below 8,700. This become UNFAVORABLE risk/reward for bulls, yet FAVORABLE risk/reward for bears. I've used the p/f charting technique of channeling to establish what could become the lower end of a downward channel and may serve a traders targets in the week's to come.

On December 10th, the Dow Industrials Bullish % ($BPINDU) reversed into "bear alert" status giving traders/investors ample opportunity to prepare for today's break. The "externals" are now beginning to confirm the what the bullish % was alerting to and defensive action should be taken.

Intl. Business Machines (IBM) - $1 box

Shares of IBM may become subject to profit taking and a break at $78 would be considered near-term bearish. There are some profits below $72 that may be at risk, and the recent "high pole warning" and reversal from the recent high of $89 hints that distribution is taking place. We see similar technicals dating back to late August of this year, when IBM gave a "high pole" warning then triggered a double-bottom sell signal at $71 and broke bullish support trend at $70. I like a 1/2 position short/put in IBM at market, stop $83.50, target $72 near-term (will look to see if what a bearish count is should it be generated). Traders can select their own options based on their trading plan. I like the Jan. $80 puts, with a trader's target of $73.

Jeff Bailey

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