Updated Monday, 4/23 for Tuesday's Market

Key DOW Levels for 4/24
UP Above 10,600
DN Below 10,475

Retracement
The Dow loses more ground and forms a saucer. The Open
should tell us whether we are going to see a collapse or a
rally over the next five days.

>From yesterday's commentary,"In the very short term, watch
10,575. I am expecting a push down through this number
Monday. If so, we want to Short and hold for the likely
ride to 10,500 and possibly 10,400."

Friday's pattern made this call pretty obvious - we were
consolidating in an upward-sloping pennant below 10,600.
It was clear that we would likely break the lower boundary
and head to 10,500 or that vicinity.

The real news here is in the Daily Chart. If you look at
it, you will see a very strong move from the lows at 9,400
to the current level of 10,500. Too far, too fast. And,
we are just under the important 10,600 level. All of this
evidence tells us it is NOT safe to get into the water on
the Long side. Not yet. Shorts will very likely yield
some nice profits over the next week or so.

Having said that, we could easily see a small reaction
rally in the morning Tuesday. Why? Each index has
retraced a reasonable percentage, and turned up at the
close on pseudo-saucer bottoms. I would be more convinced
of this if my office-mates hadn't just showed me their
Industry Rotation pages (which you might want to take a
look at, elsewhere on SignalWatch). Many, many groups are
rolling over, after strong two-week moves.

So, if I had to"call it" right now, I'd say we are very
likely going to break 10,475 tomorrow early in the day, and
likely see a 150 to 200 point down day. As I have always
said, however, don't anticipate. Wait for the break and go
with it. If we gap down tomorrow, I am placing a
moratorium on my tail fake rule - go with the gap and hold
your stops at 10,500. We could lose a lot of ground
quickly here.

Short Term Dow

In the very short term, watch 10,520 down and 10,540 up.
Our close formed a saucer which, if it is going to
materialize, should continue through 10,540 and keep right
on going. Hold stops right in the middle, at 10,530. If
we do go up, watch for a reversal in the 10,575 zone.

Medium Term Dow

We are still out of our Longs, and I don't think it's going
to be safe to go Long again until we get solidly above
10,600. If we cross it tomorrow, you could enter Long
there with a tight stop (at 10,575) but you must be careful
here. We are very, very vulnerable to the pop-and-drop
syndrome, that is, a rally to 10,600 and a failure. If we
drop through 10,475 we will not hesitate to go Short for
the medium term, with stops at 10,500.

NASDAQ and OEX

We got our break answer at the Open, from the tight
consolidation we were discussing. A gap down of 30 points
leading to another 70 to the day's low at 2,050. Now, we
are at 50% retracement of the prior move on the index, and
will be watching this level for action tomorrow (yes, it's
a new fulcrum). The OEX dropped through our watchpoint of
640 and headed down 30 before forming a saucer. Again, we
will be watching 630 for a failure tomorrow, and will short
it there. **

In Summary:

We got our retracement, and turned up slightly at the
Close. Is that it? Unlikely. Again, based on charts for
the industry groups, the market looks weak and is likely to
break our support levels tomorrow and give up quite a bit.
If this happens, it's too early to tell if we are going to
see an actual rally failure. But, that outcome is
certainly not out of the realm of feasibility. Watch Dow
10,475 tomorrow. If we drop through, we are likely going
lower - fast. If we get above 10,600 tenuous Longs would
be prudent (tenuous as in - use tight stops!)

Thanks for listening, and good luck in your trading!

Ed Downs
edowns@nirvsys.com

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Definitions:

Short vs. Medium Term: The short term is defined as 1-4
days. Most short term commentary is relevant to day traders
for the following session. The medium term is 1-4 weeks.

*** Fulcrums: A fulcrum is essentially a"line in the sand"
or"demilitarized zone" in the battle between bulls and
bears. These lines, identified by experience, are
equilibrium points between buyers and sellers, and are
usually found in the centers of consolidations (trading
ranges). When price moves away from a fulcrum, it usually
moves quickly and a great distance.

(!) Higher-High, Lower-Low rule - As we establish fulcrums,
and exit or enter positions based on them, we want to avoid
whipsaws, which are losses caused by trading back and forth
across the line. We do this by waiting until the recent
high or low is violated. For example, let's say a security
(or index) is at 100, which is our fulcrum. We break 100
and go Long. The market rallies to 103 and then drops back
through, so we exit at 100. Now, we do not go Long again
until the recent high, just formed by that reversal at 103
is crossed. Say the market rallies again, gets to 105 and
heads down through 100. We exit and wait for 105 to be
crossed. This process insures that we will be whipsawed at
most 3 times, as continued reversals of this type will form
an expanding triangle - a rare formation.


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