Kicking the Can

The scale of the Republican capitulation yesterday was impressive and the Democrats got their ninety day extension without any real concessions. Frankly I was surprised and clearly the Democrat strategy of hanging tough on the negotiations was realistic after all. There wasn't much reaction on the equity futures market and ES is down four points or so at the time of writing since the bill passed.

I posted an ES 60min chart on twitter last night showing that the rising wedge from the last lows had evolved into a perfect rising channel. This was obviously a bullish development and here is that chart. ES 60min chart (last night):

Somewhat to my surprise though, as ES retraced from the announcement that the budget bill and debt ceiling extension had passed, channel support was pinocchioed, which is a signal that the channel will most likely break down soon. This may be a 'Sell the News' setup forming here. An hourly close below channel support will break the channel. ES 60min chart:

How likely is a strong retracement here? Historically not very likely. The daily middle bollinger band has already been retested and there has not been an occasion in the last year where a push from the daily middle bollinger band has come this close to the daily upper bollinger band without hitting it shortly afterwards. Above the daily upper BB, now in the 1727 area, there is also rising wedge resistance in the 1740 area, which bulls need to break above to trigger a wedge target in the 1900-20 area. Until this wedge breaks up this may well just be a topping process that is part of that wedge breaking down. SPX daily chart:

If SPX does make it to the 1740 area it is also worth mentioning that the weekly upper bollinger band is currently in the same area. SPX weekly chart:

If we are going to see weakness today, and while I have been writing the ES rising channel has now definitely broken, then I have a small double top target from yesterdays close in the 1709 SPX area, with rising support from the last low in the 1710 area. On a break below that I have a possible H&S neckline in the 1695 area, close to daily middle bollinger band support in the 1693/4 area. SPX 60min chart:

On other markets I posted the possible IHS forming on TLT last week. Now that US default risk is out of the way this may complete and start to play out. It needs to complete soon as the right shoulder is becoming extended and losing symmetry. TLT daily chart:

This has been a strange few days with the government shutdown and the budget/debt ceiling fight dominating the news. Equities have rallied hard in the expectation of a deal and now the deal has been made we may see markets give some of those gains back. The key support area here is 1693-5 on SPX. That should hold any modest retracement and a daily close much below there would open up the possibility of a much deeper retracement.