Trading Plan for 8/8

Downgrade, shmowngrade… Wondering whether Friday night’s U.S. debt downgrade marks the end of bad news? Wondering whether the crash template is still in-play? Wonder no more. News from Germany on Saturday essentially invalidates the cause of Friday afternoon’s 47-point, 45-minute surge. [pay]

Pattern points… (Setups and technicals)
At least Friday night’s downgrade could have been absorbed over the entire weekend to soften its blow on Monday. One of those “sold the rumor, now buy the news” things.

There were some glimpses of a bottom Friday, like surging 47 points in 45 minutes (400 Dow points), no doubt exacerbated by oversold RSIs.  The low had printed printed while fulfilling 1168.00, the decline’s next lower objective under 1192.00. The surge almost gained traction, probing two prior highs before falling back. And Friday’s last hour didn’t trend down, which was likely for entering Friday’s last hour under all prior sessions’ lows.

The low’s oversold RSIs already required a retest. Now reports Saturday from Germany are suggesting the 47-point surge’s trigger was erroneous, that Italy’s hopeful news Friday was premature. The rally seemed to know that, or about the U.S. debt downgrade coming, since its consolidation formed a Complex Triangle whose complete retracement is still required.

Throw Germany’s declaration on top, and and my “(up)crash(down)” template (new name, like it?) is still in-play. It should resolve Monday, this being the sequence’s 11th day. Assuming Friday’s low is retested, regardless of how deep the retest, let’s see what patterns develop on the way down and how technicals look when we get there.

What’s Next… (Outlook and opportunities)
I am assuming a retest of the oversold RSIs at Friday’s 1163.25 low, most likely down to 1145.00-1149.00, without yet confirming the crash(down). In case world peace and multilateral agreement were to break out, then a gap up maintained above 1220.00 – i.e. not reversed back under 1212.00 – would target 1237.00, where almost any higher high would confirm the (up)crash underway. [/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.