Snapshot Notes - October 24, 2006

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TUESDAY, OCTOBER 24, 2006

PostCloseSummary

10/24/06 5:00 PM EST

In the first note this morning, I went over some figures that suggested it was unlikely we would see a move of greater than 0.5% or so in the S&P 500 today, as traders await the Fed announcement tomorrow.

The tight range we typically see before those days kicked in again, as the major indices didn't move that much from Monday's close. A few of our intraday indicators were flashing conflicting signals as well, which added to the probability that we'd see a range-bound day.

Heading into Wednesday's decision, we often see an upward drift in equities prior to the actual announcement, then two or three wild gyrations before a more directional move starting in the last hour to 1/2 hour before the close and lasting until the bell rings.

But if the move after the announcement is large, it's not necessarily to be trusted, as we saw yet again last month. I've written about this tendency several times from several different angles, so for those interested, I suggest searching for "fed meeting reversal" using the search function on the site.

I didn't do much of anything trading-wise today, and that will likely be the case tomorrow as well until the post-Fed carnage gets sorted out. I'm basically relying on two obvious price levels to determine my short-term stance here - long if the NDX and RUT can break out and hold new highs, and somewhat aggressively short if the NDX fails to hold 1700 for more than 1/2 hour or so.

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

ApproachingTheBell

10/24/06 3:25 PM EST

There's nothing at all new that has popped up on my radar since the last note. All the conditions noted previously are still in effect, and I see no reason to change my short-term strategy at this point.

LunchtimeLull

10/24/06 12:25 PM EST

The major indices have been stuck in a fairly tight range so far today, and as noted earlier, similar conditions are likely to persist through the close as we all await the Fed's enlightenment tomorrow.

8 of the top 10 volume leaders in the Nasdaq 100 are in negative territory on the day, which has pushed the TRIN for the Nasdaq up over 1.50. That indicator has given pretty good heads-up to exhaustion points in the NDX lately, suggesting the downside should be limited here if that relationship holds up.

On the NYSE, it's a different story as the TRIN there is the lowest in a week and a half. That's more in line with our cumulative TICK, which is also overbought at the moment, though not yet grossly so. Taken together, it suggests that the upside should be limited.

So we can point to indicators suggesting the downside should be limited and some suggesting the upside should be limited, which fits in quite well with the pre-Fed pattern of only rarely seeing a sustained directional move. I continue to do very little trading-wise until either of the conditions mentioned earlier comes to pass.

MidMorningOutlook

10/24/06 10:25 AM EST

Good Tuesday morning...As most everyone knows, tomorrow the Fed will release their decision on their short-term target rate and give a brief statement on their rationale.

Sometimes the event takes on more importance than other times, especially now that they have signaled that they are data-dependent. This causes volatility to contract a bit heading into the decision, as traders aren't exactly sure what the Fed is watching. Since the spring of 2003, the day before a Fed decision has seen a 1% move in the S&P 500 (either way) only three times out of 27 chances, which happened before the first three meetings in 2004. Since April of 2004, there haven't been any moves greater than 1%.

The absolute value of the daily change since then has been .3% with a maximum average gain of +0.4% and maximum drawdown of -0.3% - all ways of saying that over the past couple of years, we haven't seen much movement ahead of the meeting as traders await the decision.

I mentioned yesterday afternoon that if the Russell 2000 and Nasdaq 100 were able to trade and hold above last weeks highs (770ish and 1730ish, respectively), then I would revert back to concentrating on short-term long trades. On the other hand, a move below 1700ish - that holds for more than 1/2 hour or so - in the NDX would have me pressing short bets. Absent either of those conditions, I'm sitting out, and I don't expect either to happen until after the Fed releases their decision.

All the best,

Jason Goepfert

President and CEO

Sundial Capital Research, Inc.

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