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Bears should have exit strategy developed

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Stocks continue their downward slide again today despite this morning's "encouraging" news on the labor front that showed continue improvement from weekly jobless claims.

Recent alerts to terrorist activities has investors jittery today after a man was arrested at London's Gatwick Airport when a live grenade was discovered in his luggage. Police told reporters that a 37-year old Venezuelan was arrested after he arrived on a British Airways flight from Columbia. Two other suspects were arrested near Heathrow Airport (London) where British troops have been patrolling after renewed terrorist threats.

Here in the U.S., the Brooklyn Battery Tunnel was closed after a suspicious package was discovered. The New York Police Department said the tunnel would be opened shortly once the package was removed.

Here's a quick look at the Dow Industrials (INDU) 7,652 -1.36%, which had moved rather "sharply" below our WEEKLY S1 support level of 7,745. The rather "sharp" move now has us looking for further downside to the WEEKLY S2 level at 7,626. In last night's Index Trader Wrap, we discussed the strategy of using trailing stop by bearish traders to help try and protect gains in a more "uncertain" market environment.

Dow Industrials Chart - Daily Interval

Today's declines in the major indexes have come when I have yet to get a "sell program premium alert" that I post each morning in the 09:00 Update. I haven't received a "buy program" alert either at this point. The retracement shows on the above chart were derived by placing retracement at the S2 and R2 of both the WEEKLY (blue retracement) and MONTHLY (red retracement) levels.

With the Dow Industrials Bullish % ($BPINDU) from stockcharts.com now at 16.6% bullish and getting closer to the October low reading of 3.33% bullish, the Dow is considered "deeply oversold" and bears should have an exit strategy in place.

The chart of the Dow currently depicts that of a MARKET discounting some type of "bad news" and a trader might expect a "climactic" type of move lower to the October lows, should such a "news event" hit the markets. The use of a trailing stop just above our WEEKLY S1 at 7,750 or a tighter stop above the red 80.9% retracement of 7,691 allows a bear to systematically try and protect gains during market hours.

One level I'm pointing out on the above chart of the Dow is the 7,533 level. This may have some technical significance in coming sessions as it relates to the formation of a POTENTIAL reverse/head and shoulder pattern. The reason I point this POTENTIAL pattern out, is that it develops when the Dow Bullish % ($BPINDU) is at low levels, where RISK for bears reaches a higher level.

As such, bearish traders should have some "best case" targets in mind for their bearish trades, but MORE IMPORTANTLY an exit strategy in place to either capture gains, or keep losses small should a more "uncertain" market environment offer some type of news that has a bullish impact on things.

In today's market monitor, I made note that shares of Boots&Coots (AMEX:WEL) $0.53 +10.41% was on the move higher. Since that time, the stock has traded a session high of $0.56. As mentioned in prior commentary in late January, this is a company that specializes in putting out oil well fires. The stock had been on the move after first mention from the $0.40 per share level. I thought investors and traders should be monitoring the stock, to at least get a "psychological" read from the market on how it perceives the thought that Iraq's President Saddam Hussein might implement a "scorched earth" policy should he decide to blow up oil wells in Iraq. Either just before going into exile, or when/if U.S.-lead forces look to invade Iraq in an attempt to unseat Saddam Hussein. While I've profiled a bullish position in the stock from a SPECULATIVE investment only and do currently hold a SMALL position in the stock, today's action does show some MARKET thought that things may be coming to a head with Iraq. It shoudl be noted that on January 31, Boots&Coots was given notice that it was in default of a $1,000,000 loan. Suffice it to say, this company is having financial trouble and deemed a HIGHLY SPECULATIVE investment.

Jeff Bailey

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