Trading Plan for 12/2

[pay]Pattern notes.
Monday’s session-long decline stopped 4 points short of its 809’00 target. Its low probed last Monday’s 814’75 opening gap up, ranging a relatively narrow 5 points into the close. It is this relentless selling pressure which makes the decline likely to bleed into Tuesday. And it is this total lack of optimism that will make it difficult for lower lows to gain traction.

An oversold market that tries getting more oversold often snaps back sharply. Few things are as ugly as getting caught short in a squeeze from levels desperately lacking in optimists. One thing is getting caught long when an oversold decline doesn’t stop, as its pace is likely to accelerate.

S&Ps have bounced overnight to nearly 824’00, and then fallen back again. There is room down to 814’00 before expecting further weakness to probe Monday’s lows down to 806’00-807’00. A bounce could target 827’00 up to 839’00. But not recovering from a lower low could put into play 765’00.

Indicators and Internals.
MACD & RSI diverged negatively into Monday’s last-minute retest of its 813’00 low. The 11-point rally so far overnight is already sufficient reward for the setup. But any chance for sellers to extend the decline Tuesday should require gapping down under the levels that generated positive divergences.

Tuesday’s opportunities.
Two econ reports are due Tuesday, but nothing after the open. Monday’s decline was enabled by Bernanke and Paulson’s public appearances. So extending the decline throughout Tuesday would help to confirm that sellers have an objective in mind. Bouncing would otherwise refuel sellers for a much busier calendar Wednesday.[/pay]