The US Treasury rating was downgraded by this rating agency Friday.

PRE-OPEN MARKET COMMENTS MONDAY – The market has been able to add to the gains since the US/China trade deal was announced a week ago. It rallied through major resistance and this was more than a knee jerk reaction. Without question, some of the move was mechanical and short covering fueled some of the move. Major breakouts of this nature have a tendency to test the breakout (now support) and the Moody’s downgrade has sparked selling.

The price action Friday was strong and from one perspective, the overnight drop is just stripping away one day’s gains. As the day unfolds, we will be able to gauge how aggressive buyers are.

Pete, what’s the market going to do? I have no #$%^ clue!!!!!!!

There will be moments in your trading career when you won’t know. That means you stick to day trading and you keep your size and trade count VERY low. If you force trades in this environment you will piss away your hard earned capital during times of uncertainty.

From a technical perspective, you wait for clarity. We got the breakout and it looked great. The market blew through resistance and it did not give the gains back. That’s bullish. Now we want to see a brief and shallow pullback that finds support at the major MAs. Support above those MAs would be even more bullish. It would be a sign that buyers are so aggressive that they view every dip as a chance to enter a move they missed earlier. If we see this, you can take some bullish swing trades. Major support will be closer because of the pullback. That means that your downside risk to that support is smaller. You also have confirmation that buyers are aggressive because they bought well above support and they got “ants in their pants” before we even got to the 100-day MA. That gives you the confidence you need to start scaling into longer term bullish swings.

You take starter positions and you do not load up the truck. The news is fluid and conditions are changing quickly. If the bottom falls out and the breakout fails, your risk exposure is contained. If the market continues to prove its strength and the move higher continues, you add.

If the selling pressure builds today, you will know that some of the move higher was “fluff” and that it attracted a lot of bullish speculators who are getting flushed out. You wait for signs of support and if the selling pressure continues to be heavy, you watch the 100-day MA closely. A fast move down to it would be a sign that sellers are aggressive and that they view this as a great opportunity to reduce risk. If the selling pressure is persistent, it is longer-term “risk off”. The breakout will fail and the backside could be nasty. If this happens, you can start taking some starter short positions and you add on confirmation.

What I am describing is called “trading”. It is not called “knowing” because we don’t know shit. It is not called “hoping” because hope is not a strategy. You evaluate the data before you and if it is random, you don’t trade. Garbage in, garbage out. When you have the clarity one way or the other as I described above, you act.

If support above the MAs is confirmed and you take a smaller starter swing long, you are prepared to weather an adverse move. If the bottom falls out and you take a loss, it’s OK. That contra move could breach support and if it does, an even bigger trade will present itself on the downside. You will make back what you lost and plenty more. If the initial move higher performs, you look for opportunities to add on confirmation. Your average cost will be lower than the current price and that gives you the confidence to add. Your worst case is that the market reverses and you stop out for a breakeven.

I can ramble on about how new trade deals are going to fuel the move higher along with a budget bill. I can ramble on about how the global economic backdrop is weak. There are potential upside and downside catalysts and the market is filled with news. Ignore the headlines and follow the map I’ve provided. Price is truth.

For today, an instant bounce would be bullish. Stacked greens right into the gap would be a sign of aggressive buying. I don’t believe we will see this. A gap of this magnitude tends to stick. Watch the first move. If it is strong, look for opportunities to join it. If the first move is wimpy, look for opportunities to fade it.

The economic news is light this week. We are heading into a long weekend and the volume will decline Thursday and Friday.

Support is at $585 and resistance is the high from Friday.