Good morning traders,

I’m fighting some more computer gremlins this morning, so this will be very short and to the point.

This morning, we find work equities down in reasonably large moves.  Asia is off 1+ – 1.7% across the board, and Europe is down roughly 0.5%.  Note that Australia, Japan and German all made 52 week highs overnight, failed at those levels, and are trading significantly lower.

No large moves in currencies, but AUD and NZD are both weak.  Net impact to USD Index is negative this morning.

No clear moves in commodities, but metals deserve our attention today.  After yesterday’s session, Gold should pick up the strength reasonably quickly.  If not, be aware of the downside potential.  Also note that Crude gave back most of the Eqypt-related runup.  It is curious how everybody starts talking about $200 oil everytime this market rallies $5.  Where is that talk this week??

In my opinion, the key factor in equities is the process of dealing with the divergence I outlined in yesterday’s morning note.  Very short-term traders often have difficulty remembering that these themes sometimes play out over multiple trading days, and this one is still in play.  I also think the correct mindset here is to expect upside, realize that in the bigger picture, (multi-week) weakness should be bought, but be respectful of the potential for sharp downside.  We are overextended with a market showing no volume or real buying pressure, so the potential for a small-scale meltdown is very real.  As a rough guideline, be careful of fading any weakness that is not immediately (within 30 minutes) reversed.  Conversely, if you are able to get some nice shorts, be careful of pressing those and exit at the first sign you are wrong.  The pattern has been clear–every dip has been bought and shorts have been punished over and over again.  Assume that pattern is in effect until you see something different.