Jan 2nd Blood Bath or New Bull?

My triangle is coming to a point on SPY, seeing similar type patterns on DIA and other indexes. Looking historically, we can expect a much higher volume day on January 2nd. Even in bear markets we have seen positive days following a weak Christmas week.

So at the end of the triangle, what is going to happen. 3 possibilities:
1) We shoot up. Corporate earnings are still pretty strong (PE ratios are still pretty low), but anticipated growth is still not that great. This will last till January 29th-30th when the fed meets, doesn't lower rates and we start dropping again. I think this is the least likely of the 3 scenarios.

2) We stay in a tighter range until the next fed meeting, starting in an slow uptrend, and then moving slowly down till the fed meeting with the Fed deciding the next move in the markets. Fed keeps rate steady, and the market drops, SPY falls to something in the mid to low 130 range, and the DOW drops to low 12000 levels.

3) The bottom falls out January 2nd, big drop over the week to the levels described above, and the fed has less impact when they keep rates steady at the end of January (with a continued bearish pattern). Eventual recovery in equities markets in late spring or early fall of 07 (this is just a guess as I haven't studied what happens during election periods).

I like scenario number 2 as the most likely, and scenario 3 being the best for everyone over the long haul. I think the fed needs to keep rates steady (they already have cut everyone a break by lowering), and let the crisis work itself out over the next 6 months instead of artificially keeping this period of pain going. We need to just suck it up and feel the pain for a few seconds, rather than let this drag on for years. I think the markets will land on solid footing if #3 happens.

So given my novice economic analysis, I would equate this to a strategy of buying in the money puts with expiration in March and June. Pulling up the option pricing right now, it's hard for me to tell what the break point is. If the put options or call options are priced right ( I really need to review some of my options books). From what I am looking at though, it looks like I will get the best value for those puts that are way in the money (same goes for those calls that are way in the money). These more expensive options look much more attractive and most likely what I will be purchasing on Monday.