Snapshot Notes - November 21, 2006

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TUESDAY, NOVEMBER 21, 2006

PostCloseSummary

11/21/06 6:00 PM EST

I've been noting for several days that it seemed like the most sensible outlook to rely upon was one of choppy conditions with increasingly light volume.

Today was the epitome of that kind of trading, though volume came in higher than I would have anticipated. Barring some highly unusual developments, I don't suspect that will be the case Wednesday and especially Friday.

Today's range in the S&P 500 was one of the smallest in years, and I've written extensively about low-range days - especially when we see clusters of them - and the bottom line is that such contracted volatility tends to put a damper on returns going forward.

We're seeing traders extrapolating the current listlessness into the future, as the VIX closed at 9.9%, one of its lowest readings in 15 years. While that doesn't say much of anything about the long-term, in the short- and intermediate-term it's a red flag.

With options relatively cheap, and downside risks gaining force, it makes sense for those with an intermediate-term time frame to put on some insurance in the form of index put options. On a short-term time frame, that's a trickier proposition due to the positive bias surrounding Thanksgiving. It's well known that the day before and day after the holiday are two of the more consistently positive ones of the year...though we know by now that seasonality is by no means a perfect guide.

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

All the best,

Jason Goepfert

President and CEO

Sundial Capital Research, Inc.

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