Snapshot Notes - December 5, 2007

As of:

SPX 1490

Traders were greeted this morning by a large gap up open in the major equity averages, the kind of thing that tends to generate extreme moves once regular trading begins - and it's usually in the opposite direction of the gap.

But like I mentioned this morning, if the broader averages can carve out a new intraday high after the first hour, then the probability of seeing a nasty intraday reversal drops dramatically. Fortunately for the bulls, that's precisely what we saw today, and despite some mid-afternoon selling pressure, buyers were persistent enough that the major indices clawed back to close near the day's highs.

I haven't seen anything since last Wednesday that reduces the chances that we're in the midst of what should prove to be an intermediate-term rally of one to three months' duration, and this kind of behavior furthers that point. I'd be a little bit more leery if we turned tail and dropped below this Tuesday's low, but even that should only bring a better opportunity around 1440 - 1450. When we get the kind of readings we did heading into last Monday, then a buying spurt like last week and a subsequent mild consolidation, then that's the kind of behavior I want to see in order to concentrate solely on long-side positions.

For the short-term, we got some moderate oversold readings in the STEM.MR Model for the Nasdaq 100 yesterday afternoon, and like a good market does, we've rallied smartly from that condition. Today's rebound, while impressive, was not enough to move most of our more sensitive indicators towards overbought territory, and I'm not seeing much else that should serve to put the breaks on this rally.

The S&P 500 has had difficulty overcoming the 1480 - 1500 zone we discussed last week, and I'd like to see a move over and above that area to suck in even more late-arriving buyers. After a move like today, for those not already long, the best bet probably lies with either waiting for a breakout and subsequent consolidation above 1500ish, or if we get rejected around this level, then waiting for some indication of short-term oversold extremes.

As of:

SPX 1490

HELP ARCHIVE

The indices have done fairly well hanging on to their gains despite the begging-to-be-sold gap up opening, which is another positive sign to add to the long list that has evolved over the past week.

While the S&P 500 continues to have trouble overtaking that 1480 - 1500 zone, it has at least been able to hold above yesterday's highs even with the spurts of selling pressure this afternoon. As long as that's the case (the S&P holding above yesterday's high around 1470), I see no reason to become overly concerned about a negative reversal. That is especially true since we hit new intraday highs past the first hour of trading - a development I mentioned I was watching for this morning, and which decreases the odds of nasty intraday reversal.

Once again I'm kind of at a loss for short-term setups, with our intraday guides all in neutral territory and various price-based setups not giving much to get excited about. I continue to like the probability for higher prices in pretty much all time frames out to one to three months.

I would like to see the S&P get over that hump at 1500 to help confirm the low, so that's the major area I'm watching here. I won't become too concerned about weakness unless we completely reverse today's gains and drop below this week's low around 1460...but even then, that should just set up an even better opportunity around 1440 - 1450 heading into the new year. I'm not at all a perma-bull - a quick check of the comment archives will confirm that - but when we have the kind of setup we spent a good deal of time going over last week, I want to concentrate solely on finding good spots for long-side trades on all time frames.

As of:

SPX 1490

HELP ARCHIVE

Good Wednesday morning...We begin the day with a large gap up opening after a slew of positive news hit the wire in the pre-market. The news itself isn't typically all that important, especially since we're in that screwy kind of mindset where "good" news can actually be "bad" since it may reduce the Fed's impulse to lower their target rate.

We left off yesterday with the major equity indices not doing much of anything for the past couple of days. That was a very welcome development, since it helped to alleviate much of the severe short-term overbought condition generated by the four days of gains to end last week, without forcing us to endure too much in the way of price declines.

This was a refreshing change of character from the prior few short-term overbought extremes we've seen, which triggered nearly immediate weakness in the broader indices, and usually new lows for the move.

By yesterday afternoon, a couple of our more sensitive indicators began cycling towards oversold territory, pushing the STEM.MR Model for the Nasdaq 100 below its lower trading band and setting up what looked to be a better short-term signal for that index.

This is all in the context of a market that has been acting exceptionally well. By that, I mean that we got an overwhelming number of "excessive pessimism" readings from a broad swatch of our breadth and sentiment guides leading up to last Monday, then last week we enjoyed a stampede of buying interest. We went over a number of different data points last week in relation to both of those developments, and all of them pointed to upside moves in the stock indices with great consistency when looking out one to three months.

So now we're seeing a fairly classic spring out of a short-term pullback in the context of what certainly appears to be a bottoming market during the most consistently positive month of the year. While I never like to see big gap openings in my favor (gaps are emotional lapses that beg to be traded against), this one has actually been able to hold so far, and if we continue to hit new intraday highs after the first hour, then the probability increases significantly that we won't suffer the injustice of a nasty downside reversal later on (particularly if we're able to remain above yesterday's high around 1470 on the S&P).

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