Charts I'm Watching: Oct 11, 2013

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.