Snapshot Notes - September 14, 2006

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THURSDAY, SEPTEMBER 14, 2006

PostCloseSummary

09/14/06 5:00 PM EST

I mentioned in the first note this morning that it's fairly rare to see large directional moves on the Thursday and (especially) Friday of option expiration weeks, and today ended up fitting those precedents well, as we were trapped in a tight intraday range all day.

The consolidation we saw today was enough to relieve the overbought condition in the short-term indicators that we follow for the S&P and NYSE, but not so much the ones for the Nasdaq. The intraday guides for the NDX are still mostly grossly overbought, and with the 1630ish area being home to a cluster of potential resistance points, it seems a low-probability proposition to expect sustained upside from here.

Today's trading didn't change the short-term outlook at all, and it's likely that tomorrow won't either. Expiration Fridays tend to be narrow-range affairs (it's rare to see a 1% move up or down), so there's a good chance we'll have to wait until Monday to get some resolution about whether we're going to see a pullback here or not.

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

ApproachingTheBell

09/14/06 3:25 PM EST

There's absolutely nothing new to say here, as we continue to be held within a tight intraday range - typical trading activity late in an expiration week that already had a big move. The outlook remains the same.

LunchtimeLull

09/14/06 12:25 PM EST

I mentioned earlier that the AAII sentiment survey's latest release showed a very low percentage of respondents who considered themselves neutral - the vast majority either expected prices to rise or fall, and there wasn't much waffling.

With only 14% of the sample considering themselves neutral, we're seeing the 2nd-lowest non-committal rate in the past few years. To see if there's anything notable about that, below I've shown a chart of the neutral percentage in the survey, with the red vertical lines delineating any time the neutral % dropped under 16%, and arrows marking whether the low neutrality lead to a price rise (green arrows) or fall (red arrows).

We can see that over the past six years, a low level of neutral responses often lead to a trend change, or at least a temporary pause in the larger trend.

There's one major caveat with this, though. The lines above didn't distinguish why the neutral % was so low. It could have been because there was a very large number of bulls and few bears, for example.

Only twice in the survey's nearly 20-year history has there been a time similar to now, where the neutral % was extremely low, yet at the same time the percentage of bullish and bearish responses were under 50%. Those two times were 1/29/99 and 10/7/05, which lead to a rise in the S&P 500 over the next six months of +6.0% and 8.3%, respectively. I don't think there's much of anything we can read into two precedents, but I thought it was important to note regardless.

As for the short-term, I noted earlier that the Thursday and (especially) Friday of option expiration weeks don't often show a large directional move, and that's been the case so far today. We've been trapped in a pretty tight range and I'd be surprised to see a large, sustained move out of it in either direction.

MidMorningOutlook

09/14/06 10:25 AM EST

Good Thursday morning...There isn't much new to go over this morning. The AAII sentiment survey came out with more bulls, but also more bears. Interestingly, that left the number of "neutral" respondents at only 14% of the total, tied for the 2nd-lowest amount in the past three years.

I've written before about how high levels of neutrality most often lead to a trading-range environment. The opposite should then also hold true - that low levels of neutrality should lead to a strong move in one direction or the other. Taking a cursory look at the data, it does seem like a low level of neutral responses did have a decent record at suggesting equities were close to a big move (up or down), but I'll have to look at it some more in order to be confident of that statement.

It's fairly rare to see outsized directional moves on the Thursday or (especially) Friday of an expiration week, so I think the big fireworks for this week are likely over. I still have the same concerns about the short-term, though, those being that the NDX in particulary is significantly overbought within the context of a negative long-term trend, and with a cluster of potential resistance just ahead at 1630ish.

All the best,

Jason Goepfert

President and CEO

Sundial Capital Research, Inc.

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