Squawk Morning Briefing: Debt Downgrade Means Something

There was some telegraphing about a potential U. S. debt downgrade on Friday, but the news still seemed to shock world markets and has increased volatility going into today’s session.  Now airwaves and web pages are abuzz with chatter about what it all means: what it means for the country; for the global economy; and for markets.

From our vantage point, we find it difficult to see why anyone could know the implications and fromthe wild gyrations in markets overnight, it seems that markets are equally confused.   Treasury futures suggest that these recently devalued bonds are now more valuable, but stock markets have sold off hard on the news.   The big winner seems to be precious metals, which for the moment are seen as the only place to hide.

Nevertheless, there’s no way to know if this early reaction will last throughout the U.S. trading day, or whether it will be reinforced and continue much further in the initial direction.  The simple fact is that the downgrade gives us no new, meaningful information about the economic factors which would affect view of the market based on fundamentals.

However, it does provide additional volatility.   It’s a call for traders to once again look inside themselves and decide where they stand on markets.  It’s as if S&P has taken all the blocks and thrown them up in the air and now traders have to decide if they want to re-assemble them to form the same structure.   So at the moment, the only meaning we can attach to the downgrade is that it introduces more volatility and gives additional opportunity to create wave structures which will help us to chart a probably path for markets.

Any chance we have to gauge traders’ reactions to markets simply adds more the wave framework and therefore this should be good for us.   Our current view of markets is contained in our videos as always, but we caution that this added volatility can create dramatically different intraday outcomes, even if we do anticipate it will speed up the process of reaching a point where we have confidence in a short-term wave count.

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Elliott Squawk delivers thorough market preparation every morning in time to take action during the trading day. By combining up-to-the-minute futures activity with traditional end-of-day analysis from cash indices, you receive analysis based on the latest conditions as the trading day sets to open. Each issue of Elliott Squawk goes beyond traditional Elliott Wave analysis because we recognize that trading Elliott Waves is much more than just looking at the most likely current count. Squawk will prepare traders to assess the market action as it unfolds by answering questions that any Elliott Wave trader should consider:

• What price levels and wave motions would confirm an expected move?
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From time-to-time when circumstances warrant, Squawk will present analyses of other markets that help interpret wave action in a covered market. For example:

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Kevin McEwen and David Starr are best known to First Wave chat room participants as Kevy99 and Managematics and by their reputation for their Elliott Wave counts that have predicted market turning points. Kevin has been counting Elliott Waves for 28 years, successfully forecasting market moves in virtually every financial environment. David brings together talents in financial market analysis and software development to his wave counting. He has authored many of the studies used by First Wave Traders as well as a number of proprietary studies to aid in counting waves.

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