Snapshot Notes - September 8, 2006

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FRIDAY, SEPTEMBER 8, 2006

PostCloseSummary

09/08/06 5:00 PM EST

Coming into today, it looked as though a seemingly successful test of yesterday's lows would be enough to spur some buying pressure, though what we got off that test was not exactly inspiring.

Neither the S&P and NDX were able to make it over yesterday's high, leaving us with an inside day on both indexes (we can throw the Dow and Russell in there too, for good measure). Despite the relatively muted price action, we did see our intraday guides cycle back towards overbought, particularly the cumulative TICK that we track for the NYSE.

This is a curious reading, since it rarely reaches this level on a day that the major indexes have only modest price gains. Sometimes it can show positive divergences from price, but we're not really seeing that either. The last 7 times we've seen the TICK hit this high of a level (going back to the July low), the S&P dropped at least 10 points very quickly, so that's something to keep on our radar.

I'd been thinking that if our shortest-term indicators cycled down into oversold territory one more time (preferably with the S&P holding above 1290ish and the NDX above 1550ish), then I would be interested in looking for a short-term long position for a snapback type of trade. With today's activity, another possibility for early next week will be a short trade if our intraday indicators cycle into overbought territory instead. After the selling we saw this week, the next overbought reading should get sold fairly quickly - and according to our TICK indicator, we may already be there.

Have a safe and relaxing weekend and we'll see you next week!

ApproachingTheBell

09/08/06 3:25 PM EST

The S&P 500 and Nasdaq 100 both went up to challenge yesterday's highs, and both fell just shy before starting to roll over again. Volume has been quite low today, and there has been no real rush to push prices one way or the other.

Our intraday guides aren't much changed from the last update, with most of them neutral, and the NYSE cumulative TICK up towards overbought territory. As noted earlier, that is quite unusual and doesn't really fit with other overbought readings or positive divergences, so I'm unsure what if anything to read into it.

I was thinking this morning that if we saw a seemingly successful test of yesterday's lows, that we'd see more buying pressure come in, though what has flowed in has been meek. A lot of folks are watching the 1290 - 1302ish areas on the S&P for a possible tell about whether this is the start of something more ominous (by a break below 1290) or just another short-term correction (by a move above 1302ish), so until either one of those levels gives way we should see more of this drifty kind of trading activity. Even if 1302 does give way to the upside, I think the next short-term overbought reading will get sold pretty quickly, and it's something I will be looking for early next week.

LunchtimeLull

09/08/06 12:25 PM EST

We've been trapped in a tight range today between yesterday's high and low, with volume that has tapered off greatly in the past hour. Our shortest-term indicators have been drifting back towards overbought, particularly the cumulative TICK.

That unusual behavior in the TICK could either be what proves to be a divergence (which would be positive for stocks), or simply a straightforward overbought reading (which would be negative for stocks). I'm leaning towards the latter, as it's not really a divergence that we're seeing. The pattern isn't clear, though, and frankly I'm not quite sure what to read into it.

The bounce we've seen on the test of yesterday's lows has been anemic and the longer we just drift around, the more likely it is that we'll break those lows.

MidMorningOutlook

09/08/06 10:25 AM EST

Good Friday morning...We start the last day of the week with a subdued market, as traders attempt to absorb the selling pressure of the past two days.

Curiously, our cumulative TICK indicators are actually closer to overbought than oversold despite yesterday's performance. This could be the opposite of a negative divergence that I mentioned on Monday, when the S&P went on to make a new high yet the cumulative TICKS did not follow.

Overall, we're mildly oversold in the short-term, and if we hold above yesterday's lows on a test this morning, it wouldn't be a shocker to see buyers come in and try to take us higher. I've been looking for another round of oversold readings in our shortest-term indicators, preferably with the S&P holding above 1290ish and the NDX above 1550ish, to establish some longs for a short-term snapback trade, but that might be pre-empted if we get a seemingly successful test of yesterday's lows this morning.

Either way, those trying to establish new short-term positions this morning should be quick on the trigger. Those attempting to short should be aware of the snapback possibility if yesterday's lows hold, and those trying to buy here should beware the likelihood of sell stops located just beneath yesterday's lows, possibly forming an "air pocket" down to 1290ish (which should find more buyers lurking about).

On a side note, I want to mention that we added a new indicator to the site this morning that tracks the extremely important credit default swap market. This is the largest derivative market in the world, and I think this indicator will serve us well when it hits its extremes.

All the best,

Jason Goepfert

President and CEO

Sundial Capital Research, Inc.

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