Snapshot Notes - September 11, 2006

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MONDAY, SEPTEMBER 11, 2006

PostCloseSummary

09/11/06 5:00 PM EST

The SPX and NDX took an immediate dip this morning to challenge last week's lows, and when those held, buyers had enough interest to see the indexes cycle back up to test the week's highs. In the S&P anyway, the interest wasn't enough to sustain trade above that widely-watched 1300 level, and we ended just below. For its part, the NDX is still hovering just above - if that continues through tomorrow morning, it may spur enough interest to allow us to test the 1600 area.

In the process of hitting a new weekly high today, the S&P formed a negative divergence with our cumulative TICK. This is a fairly rare phenomenon, though it did happen one other time this month. That time, the divergence was quickly resolved as prices slid, typical of these kinds of divergences, and it is something to note for the short-term here.

Our other intraday guides are mostly mixed. I've been thinking that we're going to go through more of a range-bound period, and if so then overbought/oversold types of indicators should give consistently good signals, as opposed to the multiple false ones they often give during strong trends. Which ones are best to watch depends on one's time frame, but looking out over 1 - 3 days, I prefer to watch the short-term guides that we update during the trading day. As noted, those are mostly neutral at the moment, but I will be keeping a close eye, and the next time we get a good confluence of them in overbought or oversold territory, I will be looking to go the other way.

Have a great night and we'll see you tomorrow!

ApproachingTheBell

09/11/06 3:25 PM EST

The S&P has so far not been able to hold its breakout over last week's highs, sliding back under the 1300 level that is on so many traders' radars today.

With the push to a higher high, we actually saw another negative divergence with the cumulative TICK. This is very similar to what we saw in early September when the S&P broke out, yet it was not confirmed by higher TICK readings. There are a few theories about what these divergences might mean, such as a lack of institutional interest at higher price points, but regardless - as long as these things keep working, it pays to watch out for them.

I've been thinking that we're going to be trapped in a wide trading range for awhile, and with that kind of outlook, we'd want to place more emphasis on overbought/oversold types of indicators. In a trending market, they can give multiple losing trades, but in a range-bound market they tend to have a high batting average. Different oscillators work best on different time frames, but I'm paying most attention to the short-term guides we update intraday to identify possible short-term market extremes. Right now we're pretty mixed, but I will be watching the next cycle with interest as it should provide a good setup.

LunchtimeLull

09/11/06 12:25 PM EST

The best rally attempt of the day has seen the S&P close to filling its morning gap, and the NDX already doing so. Seeing technology-related sectors leads us higher, while "bad" sectors like oil and gold get hit hard, is best for the bulls - that kind of sector rotation tends to lead to higher prices going forward in the broader equity market.

Our cumulative TICK is stubbornly hovering around its overbought levels, something that continues to nag at me. The S&P did retreat about 10 points from its Friday overbought reading, which I noted on Friday is something that had occurred all 7 times it happened since the July low, so perhaps that has fulfilled the downside "target" for now until it cycles back up to another true extreme.

Other than the TICK, the rest of our short-term stuff is mostly neutral and not giving any particularly directional bias at the moment. I'll be watching last week's highs for the next clues, which come in around 1300 on the S&P and 1580 on the NDX. My best guess is that we're in for a while of trading-range type trading, and I think fading overbought/oversold extremes should perform well, so it's time to wait for the next setup.

MidMorningOutlook

09/11/06 10:25 AM EST

Good Monday morning...We begin the week with the third largish gap down opening in four days, the kind of trading we haven't seen since January.

We left off last week with the our cumulative TICK on the NYSE showing an overbought condition, something I noted had resulted in an almost-immediate 10-point loss in the S&P 500 the last 7 times it had happened since the July low. So far the S&P has been able to hold above last week's low (1292ish), and that is the main focus this morning, along with the NDX which is in the same position.

Should those two indexes lose those levels, traders will be intently focused on 1290ish in the S&P and 1545ish in the NDX, which are the initial pivots that many swing traders will use to determine the market's status as being in an uptrend or downtrend.

Since most of this morning's decline came in the form of a gap, the weakness has not had enough time to be reflected in most of our intraday guides. The TICK is still relatively overbought, something that usually takes at least half a day to work through. I don't think we'll get too far on rally attempts, particularly if the S&P approaches 1300 again.

All the best,

Jason Goepfert

President and CEO

Sundial Capital Research, Inc.

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