Trading Plan for 12/16

[pay]Pattern notes.
Monday’s steady progression of lower lows came from the general absence of buyers pushing back. We had just finished discussing this point in the chartroom near the 3:30 lows, when two things happened in somewhat rapid succession. First, the 858’25 bounce limit was recovered 2 points off the low, which was 1 point off the target. And then a surge reversed back up to the 873’75 noon hour highs.

Three hours of selling retraced by 10 minutes of squeezing. But now there are two interesting points about the surge. First, its gain has yet to extend any higher thus far 90 minutes into the overnight Globex session. And it has yet to be retraced. The optimism might be leveraged into something more meaningful by gapping up above 880’00. Otherwise it appears that Monday’s last-minute surge already borrowed the discounted value of what patient buyers were saving up to unleash Tuesday.

One other observation about Monday’s surge is an observation about its close, which was under Thursday’s close. The controversy surrounding Friday’s session is whether its intraday recovery represented any sort of bottom. Again, absent a gap up Tuesday above 880’00, no.

Indicators and Internals.
Technicals at Monday’s low don’t indicate anything specific in store for Tuesday, nor do readings at the last-minute surge’s high. Much more interesting is that just over two times more NYSE up volume than down volume was able to produce nearly three times more declining issues than advancers. This reflects a credibility to the selling pressure which suggests buyers stayed away for a reason – they didn’t stand a chance unless they ambushed sellers when they did.

Tuesday’s opportunities.
The reaction to Goldman’s (GS) earnings might be able to trigger that gap up above 880’00, if the morning’s two econ reports don’t help or interfere. Follow-through would be hard earned, considering traditional anxiousness ahead of the afternoon’s 2:15 FOMC interest rate announcement. Not that I expect one thing or another from GS’s earnings – the stock does not appear to have bottomed, at least not permanently, but an initial bounce can’t be ruled out. More important to the broader market is the unfinished business below, and the lack of enthusiasm for resolving it in time to allow a year-end rally, or simply to increase the distance from its magnetic attraction.[/pay]