Today US lost its AAA rating: An event which was once considered unimaginable has finally taken place. According to the main stream financial median, a Debt Downgrade could have severe consequences, like rising interest rate and declining stock market. This kind of behavior would result in reduced economic activity, ultimately leading to another recession.
At this point, I would like to ask: Are we going to witness a dramatic sell-off Sunday evening? Or will this downgrade give way to a temporary rally? Based on our trading experience, current market structure and Inflection Point Model turn window of August 17 - August 26, it would make sense for the market to shrug-off the downgrade news and rise for a few days. This rise would lead to a final decline into the turn window.
In any case, next few days will be very interesting with considerably choppy market action. Therefore, the best strategy will be to stay on the sidelines, continue to analyze the market, define risk and trade based on Trading Algorithm signals.
Note: I will be on vacation starting August 7, 2011, till August 11, 2011. After vacation we will thoroughly re-analyze the Market Matrix to decipher whether the market will bottom in the Turn Window or will give a selling/shorting opportunity.
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