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Market hold bullish tone

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Stocks have steadied in the latter part of today's session and are back near their best levels of the session with the Dow Industrials (INDU) 7,839 +1.16% showing a 90 point gain and just off its morning high of 7,887.

The broader S&P 500 Index (SPX.X) 828 +1.31% looks to challenge its session high of 830.91 as the bulk of sectors we follow on a daily basis post gains, with many up better than 1%.

While today's trade depicts that of some extensive short covering that may have some bearish bets having been placed on a "less friendly toward Iraq" tone from chief U.N. weapons inspector Blix's report, both the Dow and the S&P 500 Index have broken above downward trends shown in last night's index trader wrap, and this most likely has created some further short covering into the three-day weekend.

The markets are closed for trading on Monday, in observance of President's Day.

In Tuesday evening's Index Wrap, we looked at a point and figure chart of the S&P 100 Index (OEX.X) 419.02 +1.2% on its conventional 5-point box scale. In October, we had noted that the bearish vertical count of 390 in that index could have been a bearish traders target and "amazingly" the OEX hit that bearish target. Tuesday comments in the market monitor from Linda Piazza regarding an intra-day type of "failure" in the OEX had her looking at a potential decline in the OEX in coming sessions to the 390 level.

Her comments had me reviewing the OEX point and figure chart, and as noted in Tuesday evening wrap, her comments tied in with the current bearish vertical count on the p/f chart of the OEX.

Last night, this jogged my memory. It was also in October that we were noting a bearish vertical count in the Dow Diamonds Series Trust (AMEX:DIA) $78.73 +0.91%, which at the time had a bearish vertical count of $73.00 associated with its charts. With the Dow Industrials Bullish % ($BPINDU) falling to 13.33% after yesterday's trade and becoming even more "longer-term oversold" from a bullish % viewpoint, I wanted to look and see if there might not be similar correlations made currently with the DIA as that found in the OEX. Both in October and now.

Dow Diamonds (DIA) - $1 & $2 box

I don't remember if I have ever commented on the DIA bearish count of $75 that is currently associated with the Dow Diamonds (DIA) point and figure chart, but the correlative "bearish counts" that present themselves between the Dow and OEX are interesting to say the least. Especially with both of their bullish % indicators now below the 30% level, which is deemed more oversold.

What I'm looking at is "the past" to try and get a feel for the near-term future of trading in the Dow. While the past is no guarantee of the future, my observation is that we as traders and investors might begin to view market action as it relates to the Dow as somewhat similar to that found in late September (just prior to red A) where we might now currently look for a 3-box reversal higher (today's action has me now thinking this) back to the $80.00 area in the Dow Diamonds. This might be equivalent to a Dow 8,000, roughly 150-points higher than current trade, then look for some type of "stalling out" at that level (I'm not sure Blix's reports has calmed war with Iraq fears, terrorist threats, or North Korean comments) and then look for a $5 reversal back lower in the DIA, which would be equivalent to 500 Dow points, before yet another rally back higher, as the Dow looks to build a base.

I'll admit, that my head is "spinning" a bit after staring at some shorter-term bar charts this morning. However, a step back and a look at the p/f chart of the DIA helps me try and view things over the next month or so, as it relates to trading in October.

I've also placed various Bullish % inflection points on the DIA chart. The bullish % are good for understanding RISK and who has it. At lower levels of bullish %, BEARS assume the bulk of the risk, while higher levels of bullish % have BULLS holding greater risk.

One thing we will get a look at later tonight is next WEEK'S pivot analysis levels. I will look to see if there are any correlative levels of resistance at Dow 8,000-8,100 and support of Dow 7,500-7,600, which might correlate with similar trading found from October.

Jeff Bailey

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