When a trend exceeds a Hidden Pivot target, we usually infer that it will continue, often following a reaction move in the opposite direction. Notice in the chart that the Dow Industrials decisively exceeded a 17,251 downside target this week that has been nearly three months in coming. The target itself is moderately compelling, since the pattern that produced it is a good one although not perfect. According to the Hidden Pivot Method, the most reliable patterns begin with A-B impulse legs that have exceeded two prior highs or lows; in this case, the A-B leg exceeded only one external low. Still, the D target should have evinced at least some support in the form of a visually obvious bounce. The fact that it didn’t and that the eventual bounce came from a low 125 points beneath the target implies there will be another leg down, possibly of greater magnitude than the one that has occurred so far.

The bearish implications of this picture would increase significantly if the Dow were to breach the ‘external’ low at 17037 recorded last February without having rallied above this week’s so-far high, 17629. At that point we would have a textbook impulse leg with enough imputed power to imply that a bear market had begun. I believe it already has, based on late April’s peak in the NYSE advance/decline line and some other technical factors. However, a swoon exceeding 17037 would offer strong confirmation of this. Accordingly, I’ve set an alert on my chart at 17037. From a trading standpoint, we will look to short into rallies like Wednesday’s, using their midpoint pivots and D targets and tight stops. By that criterion, trading in DIA or with put options, Thursday’s high was a short at ‘p’ off this pattern from the 15-minute chart:  a=17147.51 (8/12 at 12:15 p.m. EDT; b=17423.90 (3:45 p.m.). We’ll continue to look for short-entry set-ups intraday, but you should come to the task understanding that the best such opportunities will necessarily occur at times when you feel most uncomfortable exploiting them.