Picture Perfect – Higher Opening Rejected – Indexes Slammed – Support Zones Still Holding – Diversified Trading System Caught Moves in Multiple Markets!

Although it may have seemed that everyone read my blog on Monday morning – the markets opened stronger as expected. As the DJIA pushed back above 14,000 it was the “all clear” signal for some and the “bell sounding the top” for others. The weakness in the Russell was first to take hold and this added support for the additional down leg to take hold. I continue to believe that it is the Russell 2000 that is leading trade direction at least for now.

The media gave what I believe are unrealistic answers as to what was behind the sell off – that being the Italian elections. While this may have been leaned on somewhat it was the weakness in the Euro and while that may have been due to the elections it was the prime suspect in bringing about a large sell off in the markets.

Also, true to form, the rush to move money out of stocks and back into bonds produced a huge rally in both the 30 yr bond and the 10-year notes. The Euro and the Yen both rocketed – the Euro down and the Yen higher.

Today’s trade has quickly changed the intraday pictures – taking the momentum oscillators from overbought in most cases to oversold. This is a perfect situation for traders – there is increased volume and heavy two-way trade – markets are moving fast.

Observations from Monday’s Trade:

As expected the markets extended Friday’s rally pushing the DJIA back above 14,000. While resistance was exceeded it did not diminish the intensity or velocity of the expected down leg. Also, as I thought support at 13,800 did not hold. While this level was recovered in after hours trading, it would take a break back above 13908 before today’s lows could be considered the finishing point for the correction.

Again, the correction that is unfolding in the broader markets indexes is comprised of 3 legs – 2 declines separated by a rally. Monday’s trade was most if not the entire second decline.

As for trading opportunities, the important factor will be to follow the trend and not your emotions. Trading opportunities should remain plentiful. Equities, treasuries, and the US $/Euro and Yen are very active.

Here again is a brief list of the markets that DTS (all three birds) are producing numerous signals and have been very profitable:

• US$/Euro
• Japanese Yen against the US $ or the Eu
• GS (Goldman Sachs)
• AAPL (Apple Computer)
• E-mini S&P 500
• GLD (Gold ETF)
• SLV (Silver ETF)
• TLT (Treasury Bond Long ETF)
• TBT (Treasury Bond Short ETF)
• LNKD
• FB

Expectations for Tuesday (2/26/2013)

Although after hours trade brought some buyers back to the broader indexes, it is highly likely we’ll see follow through selling tomorrow.

DJIA (basis the March Dow future): exceeded upper resistance and pushed backed above 14,000 on Monday. As I discussed even a move above that level would not change the outlook for another leg down to begin. The speed and depth did resemble last weeks down turn and that also was exactly what I was looking for. Support at 13,800 didn’t hold and even though this level was recovered during after hours trade, the DJIA would need to get above 13908 before Monday’s lows would mark the completion point for the correction. So, again, there may be initial upside follow through to begin the session but the selling is likely to return and a drop into support at the 13.650 to 13,600 area is still possible. Because of the increased momentum in both directions it is prudent to allow for spill over for both support and resistance.

SPX (basis the cash): the S&P 500 also appears to need further downside before the correction is complete. Initially the futures moved higher after hours, but turned negative just after 11 PM EST – The hourly oscillators quickly reversed from overbought to oversold, which should contribute to two way trade and trade opportunities in both directions. Support for that move comes in at 1465.

Russell 2000 (basis the future): was the weakest link on Monday. Although the early rally breached topside resistance at 920 the rejection was clear and the sellers took over. After hours trade lifted prices off of Monday’s lows but got stuck below 900. The pattern supports another leg down (smaller) into support at 885. Volumes should remain heavy with two-way trade throughout the day.

Treasuries:

The safe haven status of the 30yr –bond sprang back to life yesterday as traders fleeing stocks put their money back into bonds. The rally was strong, but did not exceed what could prove to be stronger resistance at the 144’12 to 144’20 area. The daily stochastic oscillator pushed into overbought and has turned lower suggesting consolidation. This may produce an inside day with choppy trade. Basis the future intraday support is at 1434 to 143’23 and then drops to 142’19 to 141’24. For now resistance remains at at144’12 to 144’20. A clean break above 144’20 should clear the path for an attempt at 145’21.

10yr –note also rallied strongly on Monday producing the same pattern as in the 30-year bond. The stochastic oscillators also confirm overbought readings (daily chart), but the intraday charts suggest additional upside before any significant consolidation takes place. Basis the future support is at 131’12 and then 130’25 to 130’16. Resistance at 132 and then 132’11

TLT – support at 118.80 to 188.25 and then 116.70 to 116.35. Resistance at 119.50, 120.15 to 120.25.

TBT – support at 64.50 to 64.25. Resistance at 65.30 to 65.50, and then 66.50.