With the future of the human race at stake (ok, maybe just a few percent off the S&P 500) Congress will probably give us their usual “they gave us no choice” solution (not) sometime after the deadline. That doesn’t mean they will resolve anything (why start now?) and it certainly doesn’t mean the market will take it all in stride.
There are a number of bearish patterns setting up in the markets that should, at the very least, put a scare into folks. The USDJPY has completed yet another H&S Pattern (yellow) within the right shoulder of the very large red H&S Pattern.
Interestingly, the gap down has stopped short of dropping through the IH&S neckline. So, the jury’s still out on the potential for a vicious drop. I suspect the pair will find its way down to the big red neckline or the yellow channel midline before long — perhaps getting a bounce off the falling white midline. In any case, there’s a great deal of support in the 94.66 – 96.34 range.
The E-minis are selling off nicely this morning, with the original white .886 in danger of failing. At the very least, I expect the purple channel bottom to be tested (1664ish.)
Note, the bottom of the purple channel caught the falling knives of Nov 2012, Dec 2012, Jun 2013 and Aug 2013. So, it has a pretty good pedigree. But, of course, a tag of the white channel — our downside case at 1590 for quite some time — remains on the table.
continued for members…
UPDATE: 9:55 AM
Note the declining red channel lines running through the chart. While technically a “channel”, these have acted more like stair steps for the past six months. A stop here at the bottom of the purple channel (in the 1657-1664 range) would set up the next highest step — the white 1.618 at 1767.63.
A drop through the purple channel bottom, on the other hand, would likely retest the red midline (dashed) and complete the A:B=C:D pattern we’ve been eyeing for some time — and had mostly forgotten about with the new high on Sep 18.
We’ve been in this situation before, of course: trying to handicap the political process. It’s a silly way to invest, but no sillier than trying to handicap the Fed or the ECB.
For those not interested in playing the game, the key levels are 1727 on the upside and 1624 on the downside. We’re currently exactly halfway between the two, which implies that Wall Street sees the odds of a positive deal as 50:50.
ES is thinking about a recovery, but likely stuck here at the white midline and would have trouble getting up past 1680 — the Friday’s low. This morning’s low came close to the .618 at 1663.71 and the purple channel bottom, but didn’t quite make it. I believe we have further downside — probably to 1657 for starters.
UPDATE: 10:45 AM
ES seems intent on closing the gap from Friday. A push through 1680 opens up the H&S neckline and white channel top around 1688. So, watch those short positions. But, in the end, it probably sets up a little Bat to match the H&S at 1636.38.
It’d be a break of the the purple channel bottom, but we’ve seen many intra-day breaks that recovered by the closing bell.
UPDATE: 3:50 PM
Pretty much back where we started. I’d continue to hold short into the close, but with tight stops. The top of the falling channel is way up at 1686, so pick your poison. A better alternative for risk adverse types or those who can’t hedge overnight is to cash out and wait to see which way the news breaks overnight.
GLTA.