The level of expectation for equities this year across the financial world looks highly bullish. With a budget deal done and the Fed pumping newly printed money into the markets there can be no stopping the rise of equities and the decline of the dollar.
There is one obvious fundamental sticking point with this scenario in that as yet no budget deal has been done, and reaching such a deal doesn't look at all easy. There is a lot of speculation that will be finessed with the threat or actuality of using a poorly worded law to allow the printing of one or more trillion dollar platinum coins. That could happen in the looking glass world of US government debt but it may or may not prove to be legal to print a commemorative coin with such a high value.
The key though to this bull scenario should be the round of earnings reports and full year guidance that starts today. If these are impressively good then perhaps this bullish scenario for 2013 might deliver. If they disappoint then most likely not.
From a technical perspective the action on the RUT and TRAN particularly looks bullish, though in the case of TRAN that will look more bullish once we see a break over the 2011 high, but the most obvious large scale pattern setups on equity indices are still the bearish rising wedges that have broken down on Dow and SPX. These may yet fail to deliver, but they are impressive patterns that strongly suggest more downside after another big high in the next few weeks, and until we see strong evidence to the contrary, I'll be bearing these in mind.
Unlike the SPX equivalent the rising wedge on Dow is still testing broken wedge support. This is an obvious level to see short term retracement or possibly major failure, unlikely as that seems today given current sentiment:
