Market Recovers on News House of Representatives Will Re-convene Sunday

T3 Live

The market looked headed for steep losses Thursday before turning on a dime at about 2:30pm ET on news that the House of Representatives will re-convene Sunday in hopes of pushing through a last-hour fiscal cliff deal. Major indices finished down only around 0.1% after the impressive afternoon bounce. Pessimistic comments earlier in the day from Senate Majority Leader Harry Reid that he didn't think a deal was going to get done before the New Year triggered the heavy selling. With only a few days left before we go over the cliff, the market is showing extreme sensitivity to the headlines.

We saw big bottoming tails on many stocks across the board, and some traders were able to identify quick cash-flow opportunities in the Virtual Trading Floor(R). Apple (AAPL) looked set to test major support at $501.23, but was able to reverse into positive territory to relieve some pressure. The stock still feels heavy overall, though, and arguably has formed a macro head and shoulders pattern. The psychology has changed on AAPL, and I would only use it as a short-term trading vehicle for now.

Amazon (AMZN) was set for its second straight sharp down day, but was able to stage an impressive reversal with the market to finish only marginally negative. I am not compelled to buy or short AMZN here, I think you should wait for a more definitive set-up to form before entering new positions. The strength this year has been impressive, though.

The banks in particular looked set to have "days to take notice" to the downside, but were able to limit the damage. Bank of America (BAC) was set to have an engulfing bearish candlestick, but was able to avoid it with the late bounce. JP Morgan (JPM) and Goldman Sachs (GS) traded lower out of upper level consolidations, but were able to close back within them.

Overall I think the best approach right now is cautious one until the fiscal cliff gets resolved and we can get back to trading the set-ups rather than the headlines. I am out of the office tomorrow and Monday, but will have my predictions for 2013 out this weekend. I want to wish you all a healthy and happy New Year!

Follow me on Twitter @RedDogT3Live if you want to stay updated over the next few days.

*DISCLOSURES: Scott Redler is long BAC, YHOO, AAPL.

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