Saturday, October 5, 2013

MTU Weekend Ed. - Shutdown (10/4/13)

The U.S. government commenced its latest shutdown at the beginning of the month over funding disagreement.  The issue remained unresolved by the end of the week.

Stocks have remained dislocated. Nasdaq indexes, SP400 midcap and Russell 2000 smallcap made new highs while senior indexes broke their September retrace lows, filling SP500's last remaining gap since the August low.

 In SP500, the sell-off from its September high presents a potential wedge or triple three, which could count as an ending or leading diagonal triangle (Chart 1). If so, a near term rebound target around 1710 appears reasonable. With respect to the big picture, new highs in SP500 are probable, potentially fuel by the reopening of the government.  On the other hand,  a break of the August low is likely bearish.

In Monthly Outlook Update (9/27/13), we discussed four potential long term structures of the rally since 2009 in SP500.

At this juncture, those that accommodate an EDT (which will deliver the anticipated overthrow) look particularly appealing. Chart 2 and Chart 3 illustrate how a near term EDT fits into both bullish and bearish counts.

The upside risk to the proposed EDT is a skewed triangle discussed before.  If SP500 does made a new high but continue to extend higher, the advance is likely a potential wave five out of a skewed triangle dating back to the May high (see Chart 4-blue).