Charting the Dow

Click chart to enlarge

From a technical standpoint:

A chart of the Dow shows two lines converging, meaning an important breakout (or breakdown) is imminent. The Dow is hitting resistance in the area of February's highs and its 100 day moving average. This resistance zone (12690-12750) was tested just days ago when the Dow was rejected at 12733. The support line is less influencial, as it only goes back to March 10th. A decisive break of it would nonetheless give the market reason to believe that the recent positive sentiment is ending, and trigger a tradable sell off. Until the Dow breaks its 200 day moving average, which is currently at 13,125, we are in a bear market. Any rallies or selloffs below 13,125 are typical bear market action. It is dangerous to get caught up in the hype of a rally below this important milestone, as the next leg down could leave you holding the bag.

From a fundamental standpoint:
The market has been directionless over the past several sessions. It is simply in a holding pattern, waiting for direction from the earnings reports of the financial companies. Next week it will get its wish, as BK, C, GS, JPM, MS, USB, WB, WFC, and MER are all set to report. In addition, we will get retail sales figures, PPI, CPI, housing starts and initial claims. The market will be given a direction next week for sure, if not sooner.

How we're trading it:
We remain long the Ag names POT and CF, which are now 3/4 of the way up their trend channels. Because we hold a 100% position at the bottom of a channel, a 75% position at the 1/4 mark, a 50% position at the halfway mark, a 25% position at the 3/4 mark, and no position at the very top of the channel, our current positions in POT and CF are only 25% positions. Due to recent volatility in these names, we have resorted to daytrading more than usual. We sold POT today at 179, as it neared the very top of the channel. We reloaded by buying CF at the 3/4 mark at 131.70. If the market rallies tomorrow, we will be selling these names at the top of the channel once again. If the market drops, we will be adding at the halfway point of the channels.

In addition to the Ag names, we have a long position in SKF. SKF is an Ultrashort ETF which mirrors the performance of the financial stocks. A small amount of SKF here will work well to hedge the long positions, given that the slew of earnings reports from the financial companies next week have the potential to take the market back down to the 11700 level very quickly.
The SKF position should be smaller than the long positions in the Ag names, as it is specifically targeted at the very part of the market that is most fragile at the moment. If the market rallies, you want your profit on the Ag names to outweigh your loss on SKF. Alternately, if the market sells off, you are just looking for SKF to allow you to break even on your longs. SKF is not for a profit, but for a hedge. If another financial company goes under, a little SKF is going to go a very long way.
We will be adding a position in either DXD (Ultrashort Dow) or DDM (Ultralong Dow) on a decisive break of support or resistance whenever that time comes. If we had to guess at the market's next move, we would guess that it will break support and sell off. Still, we are not willing to place a bet based on a guess, so we will wait for one of the lines to be broken, and trade accordingly.