At The Brink

Some interesting developments on the P&F front last Friday so I thought I’d chime in before the Monday open. Equities obviously have been running ahead of everything else – let’s see where we are:

On Friday our P&F triggered a bullish top breakout and we’ve got a new P&F target at 1805. Obviously we are finding ourselves in a fluid environment, ergo let’s take that one with a shovel of salt. At any rate – it would take a reversal into the 1675-1680 range to put the bulls back on notice as this would trigger a high pole reversal warning (HPRW).

Now the daily and weekly panels are looking bullish as heck right now. Sure we may see a pull-back (update: already in the works on the spoos now) but as long as the 25-day and the 1687 NLBL are holding we ought to be in good shape. That matches up roughly (but not perfectly) with our P&F chart. The weekly shows us a NLBL at SPX 1711 and change – a push above it would represent bullish confirmation IMNSHO.

Oh and may I point out that our VXV:VIX ratio chart did a great job in helping us avert getting trapped at the bottom? You subs may recall that I pointed at this drop through the 1.0 mark last week – and in the last year that’s been a great spot for getting out of shorts.

Bottom Line: It’s looking better for the bulls but obviously things may turn on a dime given the continued exercise in brinksmanship we should expect out of Washington. The clock is ticking and that makes for a tough trading environment. Since equities seem to be most susceptible I would tread carefully – don’t take chances and keep your position sizes small (i.e. 1%-2% max exposure in equities). I don’t know what’s keeping bonds at bay (they do call it a confidence game for a reason I guess) but I wouldn’t want to be anywhere near those either should we cross into a t-note default. I really do not think they’re dumb enough to let this play out – but look at the bond market for early clues. Bond traders always know before anyone else.

A few more for my intrepid subs – please step into the lair:

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Cheers,