Snapshot Notes - December 13, 2006

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WEDNESDAY, DECEMBER 13, 2006

PostCloseSummary

12/13/06 5:00 PM EST

The major equity indices continued their week-long pattern of the Nasdaq 100 suffering a morning mini-meltdown and afternoon chop, and the S&P 500 exhibiting just the chop as it trades in a 10-point range for more than a week.

The indices did gap up at the open and failed right at resistance (which is bad), but they also continue to bounce off of obvious support levels (which is good).

That leaves us with a muddled mess in the short-term with no clear edge in either direction. The last option expiration of the year begins tomorrow and that often makes the chop even worse until the smoke clears, so we may not get some clarity for a few days...then, of course, it'll be about the time that everyone will be counting on the Santa Claus rally.

I've been thinking that I don't want to press the short side unless and until the NDX loses that 1775 area and the S&P drops back below 1405 (or our intraday guides show excessive optimism) and none of those conditions have been met yet.

The long side isn't exactly appealing, either, given the multiple warning signs we've been going over during the past few weeks, including again this morning with the revelation that bears in the Investor's Intelligence survey were at a yearly low.

If we break out and hold new highs, then I'll consider short-term long positions heading into January based simply on seasonality (even though that has proved itself to be a dicey proposition this year), otherwise I'll be watching a failure at the levels we've been focused on for the past week as a signal that shorts might finally have a little juice.

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

ApproachingTheBell

12/13/06 3:25 PM EST

The major indices have been trapped in a very tight range since the last note, something that has been common lately after morning volatility.

With no real directional movement to speak of, our intraday guides aren't much of a factor and the levels notes earlier are still if effect, so I don't see much of an edge in either direction here.

LunchtimeLull

12/13/06 12:25 PM EST

For the fifth time in the past six days, the Nasdaq 100 has suffered at least a 10-point morning decline followed by whippy behavior the balance of the day.

This doesn't seem like encouraging behavior - I pay a good deal of attention to the higher-beta sectors of the market as a leading indicator, as their struggles and triumphs tend to bleed over to the others.

That index continues to hold 1775 for now, which is the lowest closing level of the past couple of weeks. A close below there will violate a "descending triangle" for those who follow such things, and coming off the run we've had, with the intermediate-term sentiment conditions we're seeing, it would not seem to bode well for the broader market.

Unless and until the NDX loses that area, though, and the S&P 500 holds below its breakout level (around 1405), I'm not going to try to press bets on a market decline.

MidMorningOutlook

12/13/06 10:15 AM EST

Good Wednesday morning...Neither rain nor sleet nor gloom of night (nor bank failures nor emerging market chaos) can stop the buyers as we see a large gap up open.

The gap took the major averages to resistance levels, such as the previous high in the S&P 500 and the downtrending channels in the Russell 2000 and Nasdaq 100. There has been selling pressure since the opening bell, just enough so far to close the gaps.

Clearly the buyers are optimistic - with the latest release in the Investor's Intelligence sentiment survey this morning, we see that a week after showing the most bulls in a year, the poll now shows the least bears in a year. Except for the exceptional market of the latter half of 2003, these types of extremes have caused at least a stalling out of an uptrend whenever we've seen it in the past 15 years.

There are all kinds of things wrong with doing this, but just for a moment if we ignore the readings from August 2003 through January 2004, then any other time the bull ratio had hit its current level, the average maximum gain over the next month was +0.5% compared to an average maximum loss of -1.9%. Even keeping in those weeks from 2003, the average max gain and max loss were equal at -1.2%.

There are a fair number of these types of intermediate-term headwinds that suggest the next 1 - 3 months will likely see only moderate gains at best, and those likely will be given back at some point in that time frame.

For the short-term, as noted yesterday equities have still done nothing "wrong" which makes it difficult to make consistent money from the short side. But we're also stuck in a week-long range that makes it just as hard to be aggressive with longs. Until we either see the indices take out the support levels I've been harping on (approximately 1405 in the cash S&P index and 1775 in the NDX), or our intraday guides become stretched to the upside again, the risk of pressing shorts seems high, even with the overhead resistance we're feeling today. I'm not particularly enamored with either side at the moment.

All the best,

Jason Goepfert

President and CEO

Sundial Capital Research, Inc.

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