NEW YORK ( TheStreet) -- As the U.S. approaches its debt limit, financial markets are preparing for both default and resolution.
In years past, anything involving government cooperation has come down to a last-second decision. There is no reason to believe that won't happen again this year as well.
The issue is that probability is our only form of measure. That causes patterns to develop that could trade in either direction. The patterns below in major U.S. assets will be analyzed for both potential upside and downside moves.
The first chart below is of iShares Barclays 20+ Year Treasury Bond (TLT).(SPY). Equity indices have been hurt by the debt-ceiling squabble. The long-term trend remains higher, but a default could be disastrous for companies worldwide. Borrowing rates could spike as U.S. bonds would lose their safe-haven status. Prices are at long-run support levels and will move either higher or lower with increased momentum depending on what happens over the next few weeks. The default premium priced into financial assets has weighed down equities, but the removal of that weight could lead to a strong push off of support.
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