(Note from Tim: I will be putting up an important update to my 1937-1942 analog later this morning; SJ's post below paints a pretty bullish picture; my analog provides a more bearish view, although a rather muted one.}

There have been a lot of indications in recent days that the summer range on SPX was likely to break up, so it wasn't a surprise that it has, but the timing is very bad, as it has happened without the expected retracement and buying opportunity from the 1130 SPX area, and now that SPX has broken up, there is a very significant chance that SPX will break up further to a level where a retest of 1130 SPX would be the retracement target.

The IHS target on SPX is 1250 of course, and as we're taking the bull road, we are also likely to see a new low on USD, going beyond the wedge target on EURUSD in the 1.46 to 1.50 area. I'll do a broad review tomorrow of the main bull patterns, and it isn't a pretty picture from the bear side.

Here's the IHS on SPX with the two main overhead resistance levels at the Jan and May highs marked:

I've been looking at quite a few indices around the world this morning. The UK's FTSE index sprang to the eye, as there we saw a break of the neckline of an upsloping IHS a few days ago, and the neckline was retested yesterday:

Short term on SPX the rising wedge from the low has run out of road, in that the upper and lower trendlines have now crossed. The upper trendline was touched again yesterday, and has still not been broken, though the ES version saw a significant pinocchio through it. Given that the trendline is rising at over three points a day, and therefore at 60 to 70 points per month, I would not normally expect to see it break, and SPX already looks overbought on most timeframes. We shall see if it holds today:

I was looking at my indicators and my SPX:Vix wedge still has some upside ground to cover before we see another touch of the upper wedge trendline. I am hoping that this will identify the next significant swing top, though if so, I'm thinking that looks to be in the 1170 area:

The big wild card today is the Fed meeting of course, and the bears' big hope for a retracement here is that Bernanke will announce that the Fed is taking no immediate action, and that the disappointment that there will be no big QE2 will pull the market down for the rest of the week. I think that could well happen, as the argument for supporting equities has been greatly weakened by equities already breaking upwards without any formal announcement of support.

I say support of equities rather than treasuries as that is the effect, and probably also the intention, of quantitative easing. The effect is to boost equities while putting a floor under treasuries to cushion the fall that would be expected while equities rise. It is no accident that equities peaked and bonds took off in April just after the end of the last major quantitative easing push in March.

Looking again at the 30 year treasuries yield chart, the positive correlation between equities and yields, and therefore the negative correlation between equities and bonds, could not be much more obvious. If equities are to rise to new highs now, which looks very likely, then the bond rally is over, and I see overnight that 30 year treasuries are retesting the lows of recent days. Best case in the event that there is to be a significant new QE push is that bonds fall gently. If there is no QE2 at all, they look likely to fall a lot: