Snapshot Notes - October 24, 2007

As of:

SPX 1511

Beginning yesterday afternoon, I started having a very difficult time finding anything that appeared to give an edge. No matter what I looked at, forward performance was either in line with random or conflicting with other studies of a similar nature.

When that happens, I prefer to back off trading positions and wait for something better to come along. Today was a pretty good example of why I like to do that, as we had some very volatile swings that can shake one's confidence if we're trading just for the sake of trading.

The selling pressure during the morning hours was quite severe, but ostensibly the rumor of an inter-meeting rate cut by Federal Reserve was enough to get folks interested in speculating again, and it just so happened that it occurred precisely as the S&P was testing it's low from Monday morning.

Intraday reversals of this magnitude can oftentimes spark interesting historical comparisons, but that usually only happens when price makes a multi-week extreme and/or we have pessimistic sentiment readings. Neither one applies to today.

So I'm still searching in vain for a short-term edge, and the longer-term isn't a whole lot better. The latest Investor's Intelligence sentiment survey showed that newsletter writers have reduced their excessive bullishness a bit given last week's downdraft, but they continue to be on the way upper end of their historical range of positive opinion. This is similar to the ROBO Put/Call Ratio, which tracks the smallest of options buyers. That indicator also dipped a bit last week, but both indicators are still suggesting that too many folks are counting on more upside, even after last week's 4% drop.

I don't see the benefit in trying to be aggressive one way or the other at this point, no matter the time frame. It seems we're going to get pushed to and fro based on the latest earnings confession, and I'm not seeing a good plan to trade into that.

As of:

SPX 1511

HELP ARCHIVE

It's been a pretty wild day today, with severe selling pressure this morning, then a wicked bounce this afternoon once the S&P 500 touched Monday's low.

The bounce has brought with it a complete change of character. On the NYSE, down volume was ahead of up volume by a 9-to-1 ratio at 2:00, and within an hour that collapsed to under a 3-to-1 ratio. Overall breadth is still solidly negative, though, with more than 2 stocks down for every 1 up. The way things are going, that may change drastically by the close.

I'm not sure what brought about this spike (talk of an unscheduled rate cut by the Federal Reserve seems to be the rumor du jour), but it highlights the choppy, whippy conditions we're in and I'm happy to be flat at the moment. Ever since yesterday afternoon, I've been struggling to find some kind of edge among everything that I follow, and I'm still failing to find one.

These kinds of intraday reversals can sometimes spark interesting historical comparisons, but usually only when price makes a multi-week extreme and/or we have pessimistic sentiment readings. Neither one really applies today.

I've been asked a few times about today's STEM.MR Model reading as it updates intraday. Even during the morning swoon, the model didn't budge from its neutral position. The reason is because it auto-adjusts to recent history, and given last week's intense oversold readings, it will take either another big sell-off in the market, or just more time to go by, before it will reach oversold again. That helps to avoid continually trying to buy oversold conditions during a falling market (and selling overbought readings during a rising one). I'm not reading much of anything into it unless/until it happens to cycle into another extreme.

As of:

SPX 1511

HELP ARCHIVE

Good Wednesday morning...we begin the day with a negative start to the day as good news is hard to come by this morning. All of the major sectors I watch are in the red, with the important Banks, Retail and Semiconductors are getting hammered.

Toward the end of Friday's session and especially by the time the indices were gapping lower on Monday morning, we had some solid evidence that suggested that we should be in store for a short-term bounce. Based on last week's selling pressure, and the streaks of down days in the Banking and Retail sectors, it seemed like a pretty good bet that we'd see two-three days of relief.

By the time the markets gapped up to open yesterday's session, similar studies were suggesting that the upside may have been mostly played out already - large gap openings tend to change the dynamics that way. By yesterday afternoon, there appeared to be so many cross-currents on both a short- and intermediate-term basis that I didn't see an edge either way, and it seemed like the next good or bad earnings report could send us up or down 20 S&P points.

Because of that, I backed off trading positions and am still in wait-and-see mode here. Our short-term guides are mixed at this point and not giving us much of a clue either way. The price patterns are similarly edgeless (at least as far as I can find), and the technical condition of the market is somewhere between OK and questionable. Within this kind of context, I don't like to risk capital, so I'm not, and will wait until we can uncover something that seems like it would be a high-probability trade.

The latest Investor's Intelligence sentiment survey showed that newsletter writers have reduced their excessive bullishness a bit given last week's downdraft, but they continue to be on the way upper end of their historical range of positive opinion. This is similar to the ROBO Put/Call Ratio, which tracks the smallest of options buyers. That indicator also dipped a bit last week, but both indicators are still suggesting that too many folks are counting on more upside, even after last week's 4% drop.

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