Snapshot Notes - November 17, 2006

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FRIDAY, NOVEMBER 17, 2006

PostCloseSummary

11/17/06 6:45 PM EST

We all know by now that seasonality hasn't worked well over the past few months - in fact, it's been more of a hindrance than a help in terms of gauging risk and potential reward.

That said, I'm still going to mention the few biases that have been exceedingly consistent over the years, and one of those is fast approaching. As you can see from the holiday portion of the Seasonality section of the site, the trading days immediately before and after Thanksgiving have shown a positive return nearly 80% of the time over a large number of years.

This bias is one of the most outstanding of any, though of course this one too is relatively well-known, and we may have seen traders begin to buy in anticipation of easy gains in the coming days.

Whatever the reason, the major equities continue to hold their ground, but almost on a daily basis the evidence is piling up that these gains will not be sustained. The latest piece comes from today's release of the Commitments of Traders report.

I've noted that large, commercial traders in the index futures (aka the "smart money") had been building up their short hedges against the market. They added another helping of shorts this week, and now hold a record $48 billion in hedges against a sustained advance.

Something else we saw this week that had been absent is a huge change in small speculator positions. The latest report shows that the net long position of these wrong-way traders jumped over 40% to $25 billion. This is now clearly in "danger" territory for the market based on previous instances of their long positions being this large.

The short-term outlook is difficult here, simply because of the seasonality wild card. I'm not sure how much - if any - weight to put on these biases due to their poor record lately, but I can't ignore the historical record which has been so consistently positive around the upcoming holiday. So I continue to look for a relatively range-bound market in the short-term, but am convinced that those with a longer time frame would do well to consider buying index puts given the current readings among our measures and the cheap cost of this insurance.

On a side note, next week I will be on my annual migration to the great woods of Northwestern Wisconsin. There will be no intraday indicator updates or notes through next week (I will be doing brief Post-Close Summaries after each close, however). Also, the daily indicator updates will be delayed by possibly a few hours each evening during the week.

Have a great weekend and we'll see you after the close on Monday!

All the best,

Jason Goepfert

President and CEO

Sundial Capital Research, Inc.

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