On February 2, I said:

If the VIX is rising, that means the Dow Jones should be falling, possibly breaking under 8,000 sometime in the next few weeks and head towards 7,000.

The play should be obvious. But I’m going to point it out anyways because I’m feeling saucy.

If the Dow Jones drops under 8,000 as the VIX spikes, buy a put on the Diamonds ETF (NYSE:DIA), which is an ETF that tracks the value of the Dow Jones Industrial Average.

As I write, the Dow is trading at 7,140. So if you sold puts on DIA, you’d have made 11% in about 40 days time.

Now is the time to get out of this trade (if you haven’t already).

Why?

On Feb 24, I talked about how “big round numbers” can be huge psychological turning points for the market. I said that 7,000 was one of those turning points because it market a ten-year long resistance line.

Well, 7,000 has been breached, as you can see from the chart above.

The Dow briefly flirted with 6,500 (which was also one of my targets) and then zoomed up right past 7,000 again.

This is pretty freaking bullish. Quite frankly, it gets me really agitated.

No, it’s not because I’ve shorted every stock in the world. It’s because there’s nothing to really get excited about.

It seems that the news, which is being seen as positive, really isn’t.

First, Citigroup says that for the first two months of the year, it made a profit. Man, that’s complete BS if I’ve ever heard it.

Then Bank of America said it won’t be accepting anymore TARP money.

If banks don’t have to count hundreds of billions in toxic asset write downs… of course they’d have a profit (so would most other banks).

So, why would these two banks not count write downs in their estimates?

Maybe mark-to-market accounting rules will be suspended this week. Then the banks won’t have to worry about write downs anymore.

From the Wall Street Journal…

After facing a barrage of criticism Thursday, the chairman of the Financial Accounting Standards Board told a U.S. House panel that he will work to expedite issuing guidance to companies on the application of mark-to-market rules.

The FASB said they’d have it done in three weeks.

If these rules get suspended or relaxed, this market is shooting higher on the back of the financials. Heck, it’s already shooting higher on the mere thought of these rules being relaxed.

Considering the financials were the sector that led the Dow Jones down to its recent lows, it should come as obvious that the financials will lead the Dow Jones higher in the weeks ahead.

Go long the Dow Jones by buying the Diamonds ETF (NYSE:DIA).

7,000 is your stop. But I have a feeling this market is pushing past 8,000 in the weeks ahead, if these rules are relaxed.

Lo and behold, I ran across this chart…

Notice how Yahoo couldn’t pass around $13.50 in December and January? Also, take a look at the Slow Stochastic (at the bottom of the chart). When Yahoo peaked in December and January, the Slow Stochastic peaked near 80.

Technical charting is all about discovering previous patterns that have a high likelihood of repeating in the future. This is one of those patterns.

Today, the stock is at its resistance line AND the Slow Stochastic is peaking around 80. There is a high-probability that the pattern we saw the last two times (a drop in stock price) happens again this time.

That would mean selling Yahoo shares short or buying a put option could be an extremely profitable move.

Never once did I even consider that one day I would be writing to you about how Caterpillar shares are ready to plummet. Here, take a look…

If you’ve been following this section every day, than you’ve heard me mention support lines on numerous occasions. A support point is a price (or trend line, or moving average) point that a stock has a hard time going under.

If you notice, CAT formed a support point in October and November. CAT his $32.50 and rallied both times.

But this time the pattern didn’t hold up, which means CATs support line at $32.50 is now a resistance point. Now, CAT should have a hard time rising past $32.50.

If you like the sheer thrill of losing money in the stock market, then you could definitely short CAT right now and probably make a pretty penny.

If you’re a little more conservative, then you’ll wait a few weeks for CAT to rise back up to around $32.50 per share. If CAT fails to break above that price point, then it signals a confirmation of the resistance line… and CAT shares should fall afterwards.