Snapshot Notes - October 9, 2006

http://www.sentimentrader.com/subscriber/subscriber_home.php

MONDAY, OCTOBER 9, 2006

PostCloseSummary

10/09/06 5:00 PM EST

From the chart of the historical daily performance of the S&P 500 since 1950 in October seen on the Daily Overview page, we can see that 9 of the next 13 trading days have been positive less than 50% of the time. That's not surprising given the stats I went over earlier today, but I'm not going to keep harping on this seasonality data particularly since September bucked its trend, so let's just leave it at that.

Today saw typical holiday trading, though programs appeared to be more active than usual. For a four-hour period, we saw buy programs come in every time the TICK approached its zero line, making it difficult for anyone trying to trade against those automatic buy and sell orders.

We did see some positive activity in several "good" sectors today, and it helped move the NDX a bit higher. Our intraday guides for that index started to become stretched by this afternoon, and while they aren't yet at what I would consider an extreme level, on an absolute basis a few are to a point that preceded several of the recent short-term dips in that index.

Earlier today I outlined what I was looking for in terms of a better setup from the long or short side, and so far I'm not seeing any of them on the immediate horizon.

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

ApproachingTheBell

10/09/06 3:25 PM EST

From 11:00am until 3:00pm EST today, what we saw is buying pressure come in every time the TICK approached or slightly eclipsed the zero line. But it wasn't just any kind of buying pressure, it was the type that immediately spike the TICK back to a +1000 nearly every time.

That is NOT normal trading activity during "holiday" trading, that is program activity pure and simple, and they can dictate the flow of trading on drifty days like today, making it difficult for anyone not on their side of the ball (which is almost always the long side).

There has been some lessening of that pressure in the past 1/2 hour, but it's a toss-up into the close. We'll get a better feel for "real" trading again tomorrow with the bond and FX markets open. The "good" sectors have been having quite a run today, but it isn't having much of an impact on the broader averages. Our intraday guides are starting to stretch into risky territory on the NDX, but most of the others are neutral.

LunchtimeLull

10/09/06 12:25 PM EST

A subscriber has asked why I didn't mention anything about October being the best month of the year over the past 15 years according to Stock Trader's Almanac.

Here's the reason: I don't read the Almanac, so I don't know if they broke down the returns during the month, but I think this is an important distinction: 94% of the gain made in October over the past 15 years came during the first 3 and last 3 trading days of the month. I noted in late September that the beginning of October tends to be positive, and it was again, but the middle of the month has been very punk.

Here's something that may be startling to some: since 1950, the S&P has gained 264 total points during October. But 322 of those points came from the first and last three days of the month. In other words, the 15 days in the middle lost a total of 58 points. One would have done quite well from a risk/reward standpoint by buying the first and last few days and skipping the bulk in the middle entirely.

Our short-term guides are still neutral, and we're bouncing around in typical holiday-trading mode. I'm continuing to look for the setups mentioned earlier, but no going so far.

MidMorningOutlook

10/09/06 10:25 AM EST

Good Monday morning...On Friday morning, I mentioned that when bonds close early, stocks tend to exhibit an upward drift. We saw that take hold Friday afternoon, and while the tendency is less defined when bonds are closed for an entire day, it would be unusual to see a big move in equities when its sister market isn't open.

If equities close positively, then surely we'll have to suffer all the stories about how this market is so strong, not even a nuclear bomb can take it down. And, quite frankly, I suppose there's something to that - there were dire warnings from politicos on Friday about the consequences of such a move, but equity traders apparently believe there's no bite to those barks, or they will just be superficial.

Some of the data that came out this weekend continues to stress the fact that, despite the persistent strength lately, a slew of traders have not bought into the idea of even more persistent strength. Two examples: our ROBO put/call ratio continues to hover on the "too pessimistic" side of the fence, showing that the very smallest of options traders are still intent on protecting themselves from a downturn instead of betting on a run higher; and the stats from the Bulletin Board market in September showed a huge drop in penny stock share volume - down 50% from August.

Anyone suggesting that sentiment on equities is too optimistic is either looking at drastically different data than I am, or (more likely) cherry-picking indicators to support their belief. Markets can surely top without a coincident sentiment extreme, but still there continues to be no reason from an intermediate-term sentiment standpoint to expect an imminent reversal in prices.

That doesn't mean we can't see a haircut of a few percent or so, and certainly the meat of October has given us plenty of those. I noted last week that every time September was mildly positive and October started well, the middle of the month was negative during all 8 years it occurred. Seasonality hasn't been working all that well lately, and perhaps this will be one more instance to add to the garbage heap, but I'm still using it as a reason to expect the short-term upward momentum we've seen to wane.

I've been interested in buying the first dip towards 1340 on the S&P and/or 1665 on the NDX since we broke out last week. The move we saw Friday morning could have been it, but I doubt it. I don't have any desire to try shorting on any time frame unless our short-term guides enter extreme overbought territory again, or we see a marked change in character where short-term oversold readings are not bought immediately - something we haven't seen any evidence of for several months.

All the best,

Jason Goepfert

President and CEO

Sundial Capital Research, Inc.

Forwarding or otherwise distributing this copyrighted material is a breach of your subscriber agreement. Violators are subject to termination of their subscription with any received subscription fees forfeited. Any references to historical performance are based on data we deem to be reliable, but are based upon feeds from third parties. We do not recommend subscribers take positions based on data presented here alone, but rather incorporate it into a comprehensive investment outlook.