We got a rally yesterday that was either a great harbinger of a political breakthrough — or an amazing head fake.  In either case, it shows the strength of the pent-up bullish fervor.  If D.C. gets it together, we should see some nice follow through.  If not, all that fervor will be instantly transformed to disappointment — and, you don’t want to stand in front of that train wreck.

ES and SPX have obviously bulled their way back into the broken purple channel.  SPX closed there; ES is currently about 4 points above the channel bottom.

My expectations for this rally remain the same as yesterday:

I would short here at ES 1672.50, with the understanding that it could just as easily be a small pullback on the way to 1683.30 (.500 retrace) or even 1693.50 (.618.)

1693.50 is only a few points away and would make for a nifty IH&S, so we’ll go with that assumption for now.

UPDATE:  10:30 AM

Almost to our .618 ES 1693.50 target.  Anyone still long might want to think about stops in the 1683 range.

UPDATE:  12:00 PM

There’s the tags on the .618 for both ES and SPX (which also just tagged the important 1700 level.)  Good place to try a short position — though with tight stops in case the pols actually do make a deal.

continued for members…UPDATE:  3:35 PM

Call me a pessimist, but I’ll be really surprised if this thing is put to bed without problems this weekend.  Of course, if offered the option of kicking problems down the road, I suppose we know which way Congress will go…

I’d go to cash over the weekend, but it’ll be interesting to see whether ES can close back below 1690 — which would leave the declining white channel very intact.

Even if everything is “fixed” over the next few days, we should still expect a pullback at the .618 — typically at least to the .500 (1683.30.)  But, the acceleration channel up from 1640 certainly isn’t reflecting that.