Snapshot Notes - October 2, 2006

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MONDAY, OCTOBER 2, 2006

PostCloseSummary

10/02/06 5:00 PM EST

Last week, with prices seemingly being "pulled up by a string", and very narrow intraday ranges, I noted that the risks were increasing that we'd run into an "air pocket" of swift and severe selling pressure that seemed to come out of the blue.

We got a hint of that today, as the major indices, particularly the NDX, got clipped in a very short period of time for seemingly no reason. That is exactly the kind of behavior that becomes more probable with the kind of trading activity we saw last week, and is something to watch out for in the future. The price oscillator for the NDX hit one of its lowest levels of the past couple of months today, so we'll see if this will be considered another buying opportunity as the others have been - if not, it will be a sign of waning momentum and likely lower prices.

We didn't see the same kind of intensity in the S&P 500, with traders continuing to find relative comfort in lower-beta, larger-cap stocks. That index only sold off enough to test its breakout level from last week, an area I have been keying off for the past week. Before betting too much on further weakness, I want to see some evidence that buyers don't have enough "oomph" to keep the S&P above its previous high around 1327, but so far they've been up to the challenge.

I still have no real desire to press shorts until that level on the S&P gives way. I don't think a bounce from here will last when looking out over the next couple of weeks, but again I want to see some confirmation of weakness before betting on even more to come.

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

ApproachingTheBell

10/02/06 3:25 PM EST

Last week I wrote about the increasing likelihood of seeing an "air pocket" - a bout of very swift and severe selling pressure that seemingly appears clear out of the blue.

What we saw this afternoon is the type of thing I was alluding to - the NDX dropped 20 points in a 1/2 hour with few logical reasons why. The selling pressure has been less intense in the S&P, and it has only taken that index down to test its breakout level from last week, so the next day or so will provide us with a good measure of how much interest buyers have in sustaining prices up here.

If we do bounce from somewhere around here, I don't think the move will last and I continue to believe that we're going to see more volatility with a downward bias in these first couple weeks of the month.

LunchtimeLull

10/02/06 12:25 PM EST

The major indices are just chopping around in another relatively tight range. A few of our shortest-term guides had become modestly oversold, but it won't take much for them to get back to neutral. Overall a pretty slow, drifty day...no change in outlook here.

MidMorningOutlook

10/02/06 10:25 AM EST

Good Monday morning...We ended September with a whimper, as the S&P 500 coiled up into one of its tightest 3-day ranges in years.

I went over the implications of that on Friday, the conclusion being that we very often saw a spot of short-term weakness going forward. One factor arguing against a replay of that historical tendency is the beginning-of-month positive seasonality that sometimes seems to prop up equities, but again these seasonal biases have not worked out too well lately and I'm not sure how much they should be relied upon now, either.

With today being Yom Kippur, we may see lower-than-average volume today and possibly tomorrow, but as far as prices go, I don't believe there's much of a directional bias. Based on what I've written over the past few days, I expect to see a volatile first couple weeks of October, with a downside bias, and believe that any short-term gains made in the first few days of the month will be given back. I'm not aggressively shorting, however, until we see some confirmation of weakness in price, most notably being a move in the S&P 500 back below its previous high of 1327ish.

All the best,

Jason Goepfert

President and CEO

Sundial Capital Research, Inc.

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