The Fed and Labor Day

Ben Bernanke is speaking at Jackson Hole at 10am ET today and it's hard to predict what he might say there. The Fed minutes from last week suggest that he might announce QE3, though there doesn't seem any good reason to do that here unless it is intended either as a competitive devaluation of USD, or an intervention in the presidential election in favor of Obama. Either way it might well backfire on the Fed and I'm doubtful about QE3 being announced today. What seems more likely is some sort of extension of Twist. We'll see.

Short term the bollinger bands on the daily SPX chart are now pinching together. This is when the distance between the upper and lower bands become unusually low and generally signals a significant move. The two previous pinches in 2012 were in March and April, and respectively signaled the moves into the April 1 and May 1 highs:

I posted a chart on twitter yesterday afternoon showing the possible H&S, and as SPX didn't move much before the close I'll repost that again here. A move below last week's lows would looks distinctly bearish with the H&S target in the 1370 area and rising channel support on SPX in the 1380 area:

EURUSD broke rising support yesterday but never triggered the possible double-top. Instead a triangle formed and has broken up overnight. The obvious target is wedge resistance in the 1.264 to 1.265 area, and EURUSD is testing the rally highs at the moment:

CL broke below rising wedge support yesterday, which I wasn't expecting yet. I think a top is now being formed and if we see a break over declining resistance in the 96 area I would be looking for a retest of the highs for a possible double-top. Worth mentioning though that the break yesterday might have been a wedge overthrow before a break upwards. 31% of rising wedges break up and in my experience are rather better at making target than the ones that break down. I'd be looking for topping signals in the target area rather than just diving in short there. I would only expect a big move up on CL from here in the event that QE3 is announced however.

TLT returned to test the recent highs yesterday and arguably an IHS has formed, though the right shoulder is undersized. I see three decent paths from here. For the first option, in the event that TLT breaks up, I would cautiously expect a test of the 2012 highs. On the second option, if TLT turns down again here, then a short term double-top has formed that indicates to the 123.5 area on a break below Wednesday's low. I would then expect reversal back up there to complete the IHS and  break up towards new highs. The third option is that TLT reaches 123.5 and breaks support there again to resume the downtrend. I'm favoring option 2 at the moment:

Hard to call today with Bernanke speaking in a few hours, but I'm leaning cautiously bullish. On a break below last week's low that would switch to bearish and I'd be looking at those 1370 and 1380 targets, or at least I would be if I wasn't taking the rest of the day off. Everyone have a great long weekend! :-)