Snapshot Notes - December 8, 2006

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FRIDAY, DECEMBER 8, 2006

PostCloseSummary

12/08/06 5:00 PM EST

After the jobs report release this morning, the index futures were building in a positive open once regular trading hours began.

That knee-jerk reaction was just the first of a few sucker ploys today as selling pressure quickly took over and sent the S&P 500 and Nasdaq 100 below obvious support levels.

I was willing to push to the short side a bit if the S&P remained below its breakout level, which it lost in early trading. However, as I mentioned this morning, due to the severe oversold condition in the STEM.MR model, I was very wary of the likelihood of intraday volatility.

Not long afterward, the indices spiked higher, but despite that recovery and subsequent consolidation into the afternoon, several of our shorter-term guides (the Cumulative TICK in particular) remained firmly in neutral territory, or even hovered near oversold.

Given the behavior of the major indices over the past few months when short-term conditions have been equally oversold, and given that both the S&P and NDX remained above their support levels, if the momentum-driven market we've seen for the past few months is still in effect, then we should see another rally attempt.

If we roll over instead and the support levels give way again, then we'll have seen one of the few pieces of evidence that we're heading into a different kind of market environment - one where oversold conditions aren't an automatic buy signal, and overbought ones should lead to decent sell signals.

Have a safe and relaxing weekend and we'll see you next week!

ApproachingTheBell

12/08/06 3:25 PM EST

Equities have settled into a tight range since the mid-morning recovery, but despite the overall positive action a few of our shorter-term gauges are still hovering around oversold territory.

We haven't seen consistently high TICK readings on the NYSE today, which has served to keep the Cumulative TICK on the lower end of its range, which in turn is helping to keep the STEM.MR model from rising.

Given that the S&P 500 remains above its breakout level (141 in SPY and 1420 in the e-mini futures), and the Nasdaq 100 above its multi-month trendline, the continued lack of overbought extremes in our intraday guides suggest that we should see additional rally attempts if we are still in the momentum-driven market we've been in for months now.

LunchtimeLull

12/08/06 12:15 PM EST

That was some snap-back...after an early-morning break of support, the indices came roaring back, with the Nasdaq 100 jumping 30 points in just over an hour.

It was the possibility of this kind of activity that I warned about walking away from short-term positions this morning. With obvious (and important) levels on so many traders' radars, and extremely oversold readings from our short-term models, intraday volatility was (and still is) a real danger.

This can be a boon for flexible traders with an ultra-short time frame, but makes it difficult for anyone else to have conviction in their positions. I have shortened my time frame significantly and am concentrating on these very short-term swings - basically trading long above 1420 in the e-mini futures and short below.

MidMorningOutlook

12/08/06 10:15 AM EST

Good Friday morning...Yesterday in the Post Close Summary, I wondered what development was going to take hold in the short-term - the fact that we were oversold and sitting on support vs.the fact that key reversal days in the S&P 500 have a marked tendency to lead to additional downside follow-through.

Given that the S&P was sitting right on its breakout level (141 in SPY and 1420 in the e-mini futures), and the Nasdaq 100 was skimming along its multi-month uptrend line, we should get an answer on this one today, and it'll likely have repercussions beyond today as well.

The indices bounced off the initial test of those levels, but have since reversed and are currently trading below. I noted that should the breakout level in the S&P fail and prices hold below, I would be concentrating on short positions, and that will be my focus today as long as we're below that area. With our short-term models pushing extreme oversold territory, we could get some volatility today, so this isn't one of those days where I would want to put on a short-term position and walk away.

All the best,

Jason Goepfert

President and CEO

Sundial Capital Research, Inc.

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