Snapshot Notes - September 22, 2006

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FRIDAY, SEPTEMBER 22, 2006

PostCloseSummary

09/22/06 5:00 PM EST

This afternoon I discussed the fact that our short-term guides had become solidly oversold, at the same time the S&P 500 and Nasdaq 100 were holding above obvious support zones.

That is a consistent recipe for an imminent resumption of the rally in a healthy market, so anything deviating from that should cause us to question the health of the uptrend. From the time of that post, we did bounce for the remainder of the day, but it was rather meek - certainly nothing like what we saw earlier in the week under similar circumstances.

The next couple of days will be important to watch, as we want to see how buyers treat this setup. We should see buying pressure come in again, and I will be watching 1310 on the S&P and 1600ish in the NDX closely. If we fail to rally and instead violate those potential support levels, then I will become interested in more aggressively shorting further rally attempts.

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

LunchtimeLull

09/22/06 12:25 PM EST

Our intraday guides are now flashing unequivocal oversold signals now, as the STEM.MR models for both the S&P and NDX are below their lower trading bands. The S&P model is giving its most stretched reading since July 21st.

So we have a solid short-term oversold condition, while the indexes are sitting above the potential support of 1310 in the S&P and 1600ish in the NDX. This is where buyers should be making a stand, and it will be the best test yet that we're still within a healthy uptrend. If we continue to drip lower over the next day or two, especially if we lose the above-mentioned support, then we have the first piece of evidence that a deeper pullback is likely at hand.

NOTE: This will be the last update until later this evening.

MidMorningOutlook

09/22/06 10:15 AM EST

Good Friday morning...In his blog Infectious Greed, Paul Kedrosky had a tongue-in-cheek post about positive results at Herman Miller being a contrary indicator. Herman Miller makes the Aeron chair, a very high-end accouterment to your bottom end (we're talking a $1,000 chair here folks, and from personal experience, I think they're no big whoop - I greatly prefer my $40 clearance special from the local office supply store).

Herman Miller delivered great results during the tech boom as upstart companies bought these overvalued pieces of furniture to show everyone else that they had arrived. Well, they're doing very well once again, and the stock exploded to nearly a new all-time high yesterday.

Just for fun, I thought it'd be interesting to see how the S&P fared the other times MLHR hit $32/share or higher over the past decade. It turns out that one month later, the S&P was positive only 39% of the time and showed an average return of -0.6%. Three months later than return dropped to -1.5%. But get this...the average maximum return during those three months in the S&P was +0.6%, compared to an average maximum loss of -6.2%. Ouch. Contrary indicator, indeed - at least since 1998.

As for the short-term, gaps like we saw this morning make it difficult for our intraday guides to catch up, so they haven't yet been pushed further into oversold territory. We're close, though, and I think the next day or so should prove to be a good test as to whether we're still in "healthy uptrend" mode. The last time we hit short-term oversold the indices immediately jumped higher, and anything other than should cause us to cast doubt on the uptrend's sustainability, at least for awhile, especially if the S&P slips below the widely-watched 1310 area.

All the best,

Jason Goepfert

President and CEO

Sundial Capital Research, Inc.

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