Snapshot Notes - October 31, 2006

Earlier this afternoon, I noted that the STEM.MR model had once again cycled down into oversold territory. As you can see from the chart or the intraday snapshot, it became even more stretched than yesterday and was the most oversold since mid-September.

So we have a market where we we're seeing short-term oversold conditions...in the context of a strong intermediate-term uptrend...in the midst of one of the most seasonally positive times of the year. That's a concoction that should spawn upside going forward, and we did see a little spurt of a rally going into the close.

I've wanted to see traders willing to step up and bid for higher-beta sectors before trying to game the upside again, which means I was looking for both the Russell 2000 and Nasdaq 100 to retake their previous breakout levels of 770 and 1730, respectively. The NDX did do so during its afternoon romp, but the small-cap RUT did not.

I'm being cautious with longs here because of the precarious nature of our longer-term guides. With the Intermediate-term Indicator Score at a multi-year high, I don't like to press too hard on longs even in the short-term.

Have a safe and spooky Halloween! We have a wind chill under 20^o here in Minnesota, so I'll be freezing my...uh...Skittles off taking the kiddies door-to-door.

The major indices have been stuck since noon, and so obviously still remain in their prior ranges.

The consistently positive seasonality for the next few days is intriguing, but that alone is not enough to prompt me to be long equities. The STEM.MR model has once again dipped into oversold territory, so trying to press the short side isn't an option for me here.

If the RUT and NDX can regain their breakout levels and hold, then I would be interested in trying to ride a potential short-term push higher, but other than that I don't really see anything.

The major indices have been flopping around in a kind of jumbled mess lately, and that continues today as the early upside attempt in the higher-beta indexes failed.

The S&P 500 is now threatening to take out yesterday's low, but more of a focus among short-term traders is 1370. In the Nasdaq 100, clearly the most attention will be on 1700ish for a variety of reasons as we went over yesterday morning.

Our intraday indicators are about as mixed as the market, and I don't see any clear edge here. Seasonality is certainly on the bulls' side for the coming days, but it's not enough of a reason for me to trade...if we get another oversold reading from our short-term indicators in the next few days, then I'll reconsider that, but for now I'm standing aside.

Happy Halloween morning...A stat that's been making the rounds lately is the rather amazing fact that the S&P 500 has gone more than 70 days without a 1% decline.

I went over this a few days ago (it basically provided no edge going forward), but I wanted to go back and check to see if it's ever happened where the S&P managed to duck through both September and October without a 1% daily drop. Both months have a deserved reputation for being volatile.

Indeed it has happened before, 6 times in the past 56 years. The table below outlines the November and December performance after each instance.

	NOVEMBER		DECEMBER
Year	Return	1% Drops	Return	1% Drops
1964	-0.5%	0	+0.4%	1
1965	-0.9%	0	+0.9%	0
1968	+4.8%	0	-4.2%	1
1993	-1.3%	2	+1.0%	0
1995	+4.1%	0	+1.7%	1
1996	+7.3%	0	-2.2%	4

From the table, we can see that during only one year did we see a 1% daily drop in November after not seeing any in September and October. Another observation is that in every case but one, December's return was opposite November's (i.e. if November was positive, then December was negative and vice-versa).

As for the short-term, I mentioned in the noon note yesterday that the STEM.MR model had hit its most oversold reading since September 22nd, and when combined with the exceedingly positive historical seasonality this time of year has shown, I was backing off my short trades.

The bounce from yesterday's lows was pretty anemic in the S&P and DJIA, but more pronounced in the higher-beta Russell 2000 and Nasdaq 100. Both of those latter indexes flirted again with their breakout levels of 770 and 1730, respectively, right at the open, but have been selling off since.

I don't have any interest in trying to short them again as long as they're above those areas, but I don't see a clear long setup either. I'm not a fan of buying just because of seasonality, and other than that I don't see a clear edge so I'm standing pat for the time being.

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