Dow Pointed Towards 12,600-700
By Mike Paulenoff, MPTrader.com
For three months I have held a spread position long the DIA (Blue Chips) versus short the IWM (Small Caps). My fundamental justification for holding this spread back in September was that the U.S. economy was slipping into a slowdown, or worse, which will support holding the big caps, while watching the smaller, undercapitalized companies' balance sheets deteriorate. With the exception of a few flurries on the upside, however, the DIA/IWM spread has stair-stepped lower from 1.60 to a recent low of 1.56 precisely because the U.S. remains relatively vibrant rather than sluggish.
Apart from my faulty fundamental outlook, my technical work all along has warned me that the 3+ year slide in the value of the DIA vis-