Potential trade

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Here is a trade in the making, which may or may not materialize. The chart at the top is OIL. It is at the center of its channel and could easily go either way. The chart at the bottom is DDM, Ultralong Dow. Here's the trade... if OIL spikes, the Dow will drop. The next stop for OIL is approx 86, or a gain of about 5%. If this happens, we expect to see the Dow down approx 200 to 11800. DDM would be at approx 66.

If it played out this way, we would buy some DDM at 66. For one thing, OIL is likely to turn back once it hits 86, making the Dow rebound. Of course, at the bottom of its channel, the Dow wants to rebound anyway. Furthermore, we would be very close to the Dow's lows. Although we think they will be broken at some point, we expect a few tradable rallies to start from their level prior to the eventual breakdown.

This trade, if it pans out, would break the basic rules of buying strong, uptrending charts on weakness. For that reason, you should file this trade in the "just for fun, don't bet the farm" folder. Of course, it's premature to talk about a trade that may or may not present itself, especially considering this one is primarily dependant on OIL's next move. Nevertheless, we must have a game plan going into the next several trading sessions now that Ag is off the table for the forseeable future.

DDM is something you can feel good about buying knowing that someday you can pass it on to your grandchildren. It's a low risk purchase if you think of it as a long term investment. And at these levels, you're certainly not buying at the very top. Using wider scales (buying larger and larger amounts as a stock drops in price), would eventually pay off if applied to DDM. At some point, the Dow will rebound and reach 15,000. Problem is, your money may be tied up in a relatively slow moving asset while individual stocks outperform it. Still, as a small piece of a large portfolio, it's not a bad addition here with the Dow over 2,000 points off its highs.