Trading Plan for 8/5

My crash template‘s Aug 4-8 window… has opened. Remember, the setup identifies a vulnerability to crashing, which is also a vulnerability to rallying sharply. Thursday’s steep drop still was not a crash. So, the market should either fall off the precipice Friday and Monday, or else launch an overbought rally.[pay]

Pattern points… (Setups and technicals)
The decline’s next lower target at 1215.50 was tested thoroughly Thursday. It was the central point of a 1213.00-1219.50 range that finally broke lower to 1193.25. The next lower target is 1192.00.

RSIs only made higher lows at the low, and were still oversold, so no bottom there. And Wednesday’s dubious Pivot Reversal did fail as was expected, with as much bearish consequence as a successful setup could have been bullish.

Now comes the Employment Situation report, which is probably a lose-lose proposition. QE3 seems widely anticipated, but higher employment would make that tough politically. So, an initially favorable knee-jerk reaction to good numbers should be only temporary.

If a crash is actually unfolding, then no session of the past two weeks – not even Thursday – should begin to match the damage. And new trending extremes on Friday tend to extend through the weekend into Monday. So, if a bottom isn’t about to form here, then it will form much lower.

What’s Next… (Outlook and opportunities)
Thursday’s cash and futures close(s) were 1196.00/1199.00. An initially favorable knee-jerk reaction to Friday’s pre-open Employment Situation report has room up to 1220.00 before gaining any traction. And that’s at the open. Any lesser strength would be vulnerable to resuming the decline… I recorded Thursday’s Market Wrap, linked here. [/pay]

Look for at least one update overnight or ahead of the Morning Market Tour… My thoughts on the day’s econ calendar are linked here.