Monday's Math

These changing years
They add to your confusion
And you need to hear
The time that told the truth
--Level 42

On the wake of the US credit downgrade, the $trillion question being asked is what happens to markets on Monday?

The thoughtstream I've been sampling has been mostly bearish. e.g., 'we're in for another 6-10% decline over the next couple of weeks.' That may indeed occur.

On the other hand, it is likely that some of last week's severe sell-off was due to market participants connecting the downgrade dots in advance. In such case, it would not be the most unusual thing in the world to see markets rally 'in relief' on Monday.

Moreover, the FOMC is due up midweek and if Uncle Ben waxes poetic about QE3 then markets are likely to applaud.

Any perception of good news in an already severely oversold tape (near term) may trigger an intense rally.

Personally, I'm leaning (and positioned) toward the rally scenario although the 'straight down' scenario would not shock me''

Should we indeed lift, I'll be looking to pare more long exposure because the macro picture as well as the technical picture are both more clearly bearish from where I sit.

position in SPX