Snapshot Notes - November 13, 2006

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MONDAY, NOVEMBER 13, 2006

PostCloseSummary

11/13/06 5:00 PM EST

Late last week, I noted that given the setup we had, I would normally be leaning towards long setups, expecting a resumption of the rally.

But given the peak in momentum we had seen in several indicators, it would have been unusual to see such a quick pickup in buying pressure that would be able to sustain another run higher, so I was backing off looking for longs and instead was more interested in pressing the short side if the Nasdaq 100 would have violated the 1740 area.

The NDX approached that support, but bounced off and turned it into a nice short-term rally to a new high, counter to my expectations. In the process, most of the major indices formed a short-term bull flag, and though it became fairly loose and long in the tooth, it's still a valid pattern and is something that typically leads to another rally attempt.

Given the readings we saw last week, I am not interested in anticipating a breakout, but may try to follow along for a bit if the S&P 500 breaks to a new high along with the NDX. Breakout trading is not my style, especially after we've so recently seen a momentum peak, but I'll be willing to scalp if the opportunity is there, instead of sitting on the sidelines with a frown and a bad attitude.

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

ApproachingTheBell

11/13/06 3:25 PM EST

We haven't really gone anywhere since the last post, as the major averages (and most of our intraday guides) have been stuck in a rather loose range.

The "bull flag" formation that I pointed out earlier is still technically in effect, though it has gone longer than usual before an attempted breakout. I'd still be interested in very short-term long-side trades should we break to a new high in the S&P 500, but I'm not going to anticipate it.

The Nasdaq 100 has been consolidating all day above its prior high which should result in at least one more rally attempt. I'm not interested in shorting there unless that index completely turned tail and held below 1740, though I'm sure more aggressive traders will play the failed breakout should it drop back below 1760.

LunchtimeLull

11/13/06 12:25 PM EST

A week ago, I went over the qualities I look for to determine whether we're likely seeing a "trend day", where the major indices open at their lows, close near their highs and have minimal retracements in between.

While today hasn't quite fit the definition perfectly, it's close enough to make me think we should see another push higher as the day goes along. Adding to that possibility is the fact that the indices are carving out a textbook "bull flag" on the intraday timeframes. The following chart is for the S&P 500 proxy SPY.

I guarantee you that most short-term traders have this marked on their screens, and many of them will try to jump on should the flag break to the upside. Should it happen and SPY exceeds 139, I suspect there'll be enough buying interest to carry it at least a bit further.

I've noted often that I'm not a particularly good breakout trader, and that goes doubly so after the readings we saw last week, but we have a classic bullish setup here in the short-term, and I'll likely try to ride along for a little bit if we break to the upside.

MidMorningOutlook

11/13/06 10:25 AM EST

Good Monday morning...Late last week, I went over an indicator that was representative of several others we were seeing, that being the Down Pressure gauge for the Nasdaq 100.

That measure had reached a true extreme, something that was rare to see in the past few years, but which had triggered a few other times since the July low. After each of those instances, the NDX either began a short-term decline immediately, or struggled higher for a day or two before giving those gains back.

Based on that kind of information, I was looking to lightly try the short side should the momentum begin to wane and if we saw the NDX drop below 1750, but I didn't want to press aggressively unless 1740 also gave way. Our short-term models became oversold on Friday morning just as the NDX was testing that 1740 area, and it has bounced impressively from there.

I noted then that normally when we see this kind of setup (short-term oversold conditions, in the context of a strong longer-term uptrend, with indices sitting on obvious support), I would be certainly be looking to the long side, but I was overriding that this time due to the momentum extreme we had seen earlier.

Obviously, that was the wrong stance to take, as the buying pressure just will not let up. I have no interest in trying to initiate or hold short positions when the indexes are making new highs, as the NDX is doing today, and won't again until 1740 is violated to the downside. I do think that the factors outlined last week increase the chances for a failed breakout, so I'm also laying off trying to chase prices higher now. If we run up here, I will most likely be missing it unless there are some opportunities for very short-term scalps later in the day.

All the best,

Jason Goepfert

President and CEO

Sundial Capital Research, Inc.

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