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Monday, 30 September 2013

Government Shutdown Gap

It seems likely that deadlock over the budget negotiations will trigger a partial shutdown of the US government tonight for the first time in 17 years. Equities have responded with a big gap down overnight and ES is trading at 1671 as I write. Looking at the ES 60min chart this looks like a breakaway gap under the support trendline of a pattern that could be read either as a falling wedge or a sloping H&S. The target for either would be in the 1640-5 area. There is some positive RSI divergence here and we may see a retest of broken support in the 1681-3 area. That would look very shortable. If this is a breakaway gap it shouldn't be filled until the downside move has finished. ES 60min chart:
On the SPX 60min chart the setup could also be read as either a falling wedge or an H&S. The distinction is more important here as the H&S target is in the 1660 area and the falling wedge target is in the 1650 area. The falling wedge target is a better fit with ES, but for reasons I'll show shortly I'm currently favoring the H&S setup and the 1660 target. SPX 60min chart:
On the SPX daily chart the low on Friday was a test of the daily middle bollinger band and with the gap below it the next targets are the 100 DMA at 1659 and the daily lower bollinger band at 1635. I would note that the lower band is currently rising rapidly. I would also add that the rising support trendline from the November low at 1343 is now in the 1655-60 area, putting a very powerful support trendline just under the 1660 area, very close to the SPX H&S target and 100 DMA. SPX daily chart:
On the SPX weekly chart I would note that the weekly lower bollinger band, which has held both lows so far this year, is now at 1660.53, adding a further support level to the 160 SPX target. That's not to say that SPX won't go lower, but it is to say that the support levels that have held the two declines so far this year are now in the 1660 area, so I'll be looking for reversal there unless SPX breaks through it. SPX weekly chart:
On other markets CL has broken down again and the possible double-bottom setup I was looking at on Friday is gone. I have next strong support in the 100.80 area at the intersection of rising support from the 2013 low and a possible H&S neckline. On a clear break below that I have a double-top target in the 96.5 area. CL daily chart:
I drew in a possible falling megaphone on the GC chart after the last high and on Friday GC tested the upper trendline and reversed back down there on negative RSI divergence. On a clear break below short term rising support in the 1328 area I'll be looking for a test of the last low in the 1290 area and would note that falling megaphone support is now under 1250. GC 60min chart:
I'll be posting ZB and GBPUSD charts after the open. I would be surprised to see the opening gap filled today but we may well see a retest bounce, most likely peaking in the 1680-3 area. Unless equities surprise me by breaking back over broken support there, I'll be looking for a move down to test support in the 1660 SPX area.

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