Snapshot Notes - September 12, 2007

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WEDNESDAY, SEPTEMBER 12, 2007

Looking for More Range-Bound Trading

09/12/07 5:00 PM EST

During yesterday afternoon's rally, several of our more sensitive guides cycled into overbought territory, helping to push the STEM.MR Models for both the S&P 500 and Nasdaq 100 close to "excessive optimism" territory.

During healthy uptrends or thrusts out of intermediate-term oversold conditions, those kinds of overbought typically fail, since prices continue to rise in spite of being overbought. As a recovery wears on, though, overbought tends to become more of an issue.

When we combine those overbought signals with what should prove to be resistance in the S&P 500 from 1480 to 1500, the high level of uncertainty regarding next week's FOMC meeting, and the (somewhat) seasonally weak nine-day period between the Jewish holidays, I've been expecting prices to stall out and not make a sustained run higher at least until the Fed decision is out of the way.

Today the S&P managed to claw up to 1480, and then proceeded to roll over immediately. More of this kind of activity should be in store for us until the great unknown is revealed next Tuesday. Spending the next few days ping-ponging between 1440 and 1480 seems to be the most likely course of action.

The short-term guides we follow have pared their overbought conditions and are mostly back to neutral again. But I'm still more inclined to be looking at selling in the 1480 - 1500 zone and buying towards 1440, at least until we see the reaction to the Fed decision next week.

Have a good evening and we'll see you tomorrow!

Drifty Swings are Likely Going to Continue

09/12/07 3:15 PM EST

Outlook:

A big part of my outlook for the next few days has been based on the idea that with the Fed decision looming next week, traders would be hesitant to commit significant amounts of capital either way, likely leaving us twisting in a trading range until the uncertainty is lifted next Tuesday.

With that in mind, an approach towards 1480 - 1500 in the S&P 500 seemed like it would lead to a better selling opportunity than buying, especially given that our short-term models were at or very close to overbought territory.

The S&P has managed to straggle higher today, just about kissing 1480 before being rejected on its first approach. I expect this kind of behavior to continue, and would still not be looking to add any short-term longs up here.

Not Expecting Much From Here

09/12/07 10:20 AM EST

Outlook:

Good Wednesday morning...we begin the day with mixed to negative performance in the major equity indices and broader market sectors, with no real clear theme evident among the morning gyrations.

By yesterday afternoon, several of our more sensitive guides had cycled into overbought territory, helping to push the STEM.MR Models for both the S&P 500 and Nasdaq 100 close to "excessive optimism" territory. During strong uptrends or the initial thrust out of intermediate-term oversold conditions, I expect those kinds of overbought conditions to fail (i.e. prices continue to rise in spite of being overbought), but as a recovery continues, overbought tends to become more of an issue.

When we combine those looming overbought signals with what should prove to be resistance in the S&P 500 from 1480 to 1500, the high level of uncertainty regarding next week's FOMC meeting, and the (somewhat) seasonally weak nine-day period between the Jewish New Year and Day of Atonement, I've been expecting prices to stall out after yesterday's jump - or at least not make a sustained run higher until the Fed decision is out of the way.

Nothing has really changed that view, and I'll be more inclined to sell into this market should we see a push into that 1480-1500 zone on the cash S&P 500 index, particularly if those short-term models push above their upper trading bands at the same time, which I suspect they would.

All the best,

Jason Goepfert

President and CEO

Sundial Capital Research, Inc.

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