For the equities market, there are three scenarios I am considering today.  In decreasing order of probability:

1. The S&P will hold this range (looking at 1233 on the futures) and stay in consolidation all day.  Normally, I would say there is a 70% chance of this happening due to the Rusell 2000 and other mid/small cap indexes which are still overextended.  If this scenario is in play, look for more chop and slop and lots of crosscurrents in general.  Do not get caught trading breakouts.  However…

2.  The above applies if all things are equal, and they never are.  What we have here is a market consolidation near resistance that is showing superb internal strength via continued appreciation of small caps while the more-watched indexes consolidate.  Because of this, I think there is a higher than usual chance that we will trend higher.  S&P futures (note that you should have rolled to March ’11 futures yesterday.  Check your rolls if you are using continuous contracts.) would have to take out 1233 and hold higher on any pullbacks.  If this scenario is in play, the correct play will be to get long and hold longs into the close.  There is a high probability of extension in the afternoon if the morning is able to trend above resistance, so plan ahead and be able to sit through the afternoon consolidation.

3.  There is always the chance that the market will come off.  Below 1228 probably targets a move to 1220.  This scenario seems unlikely, but it makes sense to spend some mental energy considering how you will play it.

We are watching Financials to possibly be in play today.  (Swing traders should probably be picking up some names in this sector in anticipation of the Santa Clause rally.  This sector is still greatly oversold on a relative basis and, if it catches a bid, there will be some big wins here.  This is much less relevant for daytraders.)  Also watching AIG, GMCR, YOKU and looking for possible further weakness in the precious metals complex.  Note that Copper is showing decent strength, so do not blindly assume that miners with Copper exposure will trend with Gold.  There could be some good plays in commodity stocks today, but watching Financials as my first go-to this morning.  Follow me on Twitter (AdamG_SMB) and I’ll try to update as the morning develops.