Trading Plan for 8/9
1987 called, and wants its nickname back… Prepare yourself to hear the term “Black Monday” bandied about by news reports – financial and mainstream alike. Not from me. Monday’s plunge does not equate to the capitulation selling of October 19, 1987. That style of price action remains to be seen.[pay]
Pattern points… (Setups and technicals)
A new session low at 1114.75 printed Monday just before the 2:30 when the bias environment started lapsing. A 34-point rally was retraced almost completely. Then fresh lows printed 1109.50 into the futures close.
Trending down to new lows into the close was entirely appropriate for my broader definition of a crash. But the 34-point detour helped to absorb a lot of last-hour selling. And that doesn’t fit any definition of capitulation (or shouldn’t). The late surge itself reflected a lot of optimism – spirits don’t seem too crushed.
Since Monday was the (up)crash(down) template’s 11th day, it should have either up-crashed or down-crashed. It certainly did not up-crash. So, I’m assuming that the template’s down-crash is underway. The next stage should find a flood of sellers who don’t care about valuation, just about exposure.
Since the cash session having closed above the prior intraday low, while not yet testing the next objective at 1100.00, we were able to consider holding short through the close. But only for liquid futures, ready to cover in case of overnight intervention.
I suggest re-reading last Thursday’s post about why the recovery “flash” portion of a flash crash is unlikely to rescue a crash. (Skip the post’s first two paragraphs.)
What’s Next… (Outlook and opportunities)
The 1100.00 objective could find premature support at 1103.00, which would make the ultimate test 1096.00. In any case, through any relevant timing window, extending under 1096.00 would next target 1065.00, and potentially 1035.00. Back above 1133.00 would target 1145.00… Monday’s Market Wrap recording is here.
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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.