It was worth watching the SOTU last night just to see Boehner’s contortions, trying to scowl in a dignified, statesman-like way.  Nothing much new in the speech or the response.

More interesting was Mitch McConnell’s comment on CNBC last night that the sequester will go into effect. I don’t know any reputable economist who believes we can go through sequester without a sizable hit to GDP.

But, the market is ignoring the tenuous economic situation and continues to edge higher.  What gives?  Aside from the $85 billion mainlining into the banks every month courtesy of the Fed, that is…

Zerohedge ran a BofAML study last night that pretty much says it all.  The market is currently reflecting bullish sentiment that’s higher than almost any time since 2002.  I imagine it’s even a little higher this morning.

Most past ventures into this sentiment range have not ended well for the markets – especially when there is a huge divergence between soaring markets and faltering economic backdrops, as the charts below show.

Notably, the market is ramping these past few days on negative divergence in every single time frame – from weekly on down to 5-minutes.  And, it has completed some very significant harmonic patterns at the very top of a massive ending diagonal/rising wedge that’s precisely aligned with several previous tops (Jul 2011, Apr 2012, Sep 2012.)

SPX surpassed our IHS target of 1522.60 from yesterday.  I’m closing out longs here at 1524 and will play the downside.

UPDATE:  3:15 PM

Getting a nice little push to the downside here — now 7 points off the daily high.  The white channel line that had been providing support is now providing resistance at around 1518.60 (the purple Crab’s 1.618 Fib is 1518.57.)

SPX just completed a little H&S pattern that targets about 1510.80.

Stay tuned…