Amazingly, the deal got done. Predictably, the deal buys us only a few months before we get to do it all over again.
From a market perspective, the crisis is averted (for now.) And, given the .50% hit to GDP, the Fed has even less reason to taper anytime soon.
Our upside forecast updated yesterday should be in pretty good shape going forward — though there will be plenty of bumps in the road. First stop: the smaller IH&S target at ES 1722.50.
The white channel is too steep, so another backtest of the red midline (1704-1705) isn’t out of the question. And, remember, ES did just complete a Bat Pattern at the purple .886. So, a dip to the .707 or .618 is always a possibility.
The dollar isn’t exactly loving this turn of events. It looks likely to reach our 79.6 target later today. Whether or not it can reverse there at the white .886 is anyone’s guess.
A failure to reverse in that area opens up 78.913 by early November and 75.45 in the month or two following. While I’ve had the falling white channel seen above as a placeholder for the past month or so, I suspect the top of the falling wedge will probably act as the top of a new falling channel I’ve labelled below in yellow.
Not to worry. It will only affect those who buy electronics, cars, gasoline, clothes or food. On second thought, maybe it’s best not to delay that week in Tuscany or luxury import you’ve had your eye on.
continued for members…UPDATE: 11:53 AM
ES just tagged 1722, which in addition to the IH&S target is also the 1.618 of a small Crab Pattern (purple.) We should get a pullback here, though the channels indicate the move isn’t yet over.
UPDATE: 3:35 PM
ES is trying to leak higher, but keeps running into the white midline and likely top of the red channel — not to mention the previous all-time high: 1726.75. If it manages to stay above 1715, the larger IH&S targeting 1775 is in play.
It seems pretty clear we’re going higher from here. It’s just not clear whether we get a pullback or not. I suspect we will, and that the red channel drawn above — which is parallel to all its predecessors — will take over from the white.
I think the way to play this is probably just with trailing stops — nibbling on moves higher, but leaving a stop back at the last pivot. The next important threshold is 1727. After that, there’s not much resistance until 1754.59 — the white 1.618 — and, then the yellow 1.618 at 1767.63.
If the white channel were to hold, we could reach those levels as soon as Friday morning and Monday morning respectively. Wouldn’t surprise me in the least.
If, indeed, the red channel fleshes out, the bottom is way down around 1680. Trade safe and always use stops.