Snapshot Notes - December 20, 2006

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WEDNESDAY, DECEMBER 20, 2006

PostCloseSummary

12/20/06 5:00 PM EST

One of the factors that has been cause for concern lately has been the under-performance of many high-beta sectors, with the Nasdaq 100 unable to score a new high for nearly a month now.

Semiconductors and small-caps were hit particularly hard recently, to the point where small-caps gave an oversold signal that has typically resulted in short-term snapbacks. Judging by today's performance, that pattern may be unfolding again, which should help to support the broader market - if traders are willing to put capital into higher-risk small-cap stocks, then it's unlikely we'd see a meaningful pullback in the broader market.

This of course plays into the positive seasonality theme, which I'm getting tired of writing (and reading) about. The chances for a moderate move higher into year-end does seem more likely than a deep pullback, but given where our sentiment guides are, I'm not willing to put money behind that except on a short-term day-by-day basis like occurred a couple of times over the past week.

We should see at least one more extreme in our shorter-term indicators over the next week, and I'm content to stay patient and wait for that potential opportunity to crop up.

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

ApproachingTheBell

12/20/06 3:25 PM EST

We saw a bit of a range expansion as some selling pressure came in early this afternoon, but overall the S&P 500 still has only a 5-point range from intraday low to high. I continue to not see much of anything worth pursuing here as holiday trading begins to take over. We should get one more good extreme between now and the end of the year, and until then I'm standing aside.

LunchtimeLull

12/20/06 12:25 PM EST

The indices have settled into a tight range, which I'm afraid is likely to be the case on more days than not until the end of the year as more and more traders filter out.

Extremely tight-range days have had a consistent tendency to resolve to the downside, but given the time of year I'm not too keen on anticipating that now. I'm more interested in fading short-term extremes, of which we're not seeing any at the moment.

MidMorningOutlook

12/20/06 10:15 AM EST

Good Wednesday morning...We start the mid-week with the major indices higher, apparently with a little help from Thailand which made a partial about-face on the capital restrictions that caused the mini-panic at yesterday's open. As Forrest Gump might have said had he worked on Wall Street (no doubt earning a seven-figure bonus this year), "Emerging Markets are like a box of chocolates...you never know what you're gonna get."

As we very often see when an uncertainty is removed, higher-beta sectors are performing well. I noted an oversold metric (the 3-day RSI) in the Russell 2000 in yesterday's Post Close Summary, and true to form the little guys are leading the pack this morning. If the pattern holds, then this should continue for the next few days at least and would almost certainly help the broader market hit new highs.

I'm not particularly interested in trying to chase a move either way, rather I'm looking for opportunities as they pop up, which has usually meant taking the other side of a short-term extreme. We're kind of in a no-man's land at the moment, with the major indices sitting somewhere between obvious support and resistance levels, and our intraday guides mixed, so I'm sitting out and waiting for a better edge.

All the best,

Jason Goepfert

President and CEO

Sundial Capital Research, Inc.

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