Snapshot Notes - November 20, 2007

As of:

SPX 1490

Yesterday evening, I went over several reasons why we should be seeing buying pressure come in imminently. A failure to rally soon wouldn't doom the market to eternal damnation, but it would once again cast serious doubt on an already tenuous technical juncture in the broad equity indices.

We kind of got a little bit for everyone today. The gap up open made it seem like everything was on track as it should be, then the nasty downside reversal made it feel like eternal damnation had already arrived, but then the late-day recovery gave us one of those pretty-looking bars on a chart that creates all kinds of bullish hope.

For the most part, that hope has been justified after similar reversals. Over the history of the S&P 500 tracking index, SPY, I checked for times when that exchange-traded fund hit at least a 30-day low, then reversed to close above its opening price and at least 1% above its low, while triggering at least a 30-day high in volume to boot.

There have been 20 such occurrences (none in prior Novembers), and while the very short-term was mixed to slightly negative on average, over the next week the S&P managed to rise 70% of the time by an average of +1.1%. There have been 7 of these since the 2002 bear market low, and the S&P was higher a week later after all but one of those, with an average return of +1.4%.

Many of those 7 reversals that looked so great on a chart were fake-outs, though, at least for those short-term traders who were late jumping on board. If you had waited a week to buy into the S&P, then held for a week, you would have had only 1 winning trade out of the 7...meaning that the market most often did pretty well in the short-term, but then went back down to test the reversal day.

Some additional short-term strength would of course fit in with the Thanksgiving holiday seasonality that we're probably all tired of hearing about by now. A solid argument could be make that we won't see holiday strength this year (since "everyone" knows about it), or that we will (since it will become a self-fulfilling prophesy). I'm not going to guess about it, rather I'll just follow the historical bias and assume that we'll get it like most other years.

Once again the stage is set for the bulls to take charge. We have just scored a reversal day, right before one of the more consistently positive times of the year, during a (admittedly questionable) long-term uptrend, with a large selection of oversold and "excessive pessimism" readings. Jeez, if this setup can't interest the buyers more than the sellers, then this bull market's got some 'splainin' to do.

As a reminder, I am currently away from the office in the great northwoods of Wisconsin. I will not be posting intraday updates or changing our site position during this week, but will be putting up a brief note each evening.

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