Snapshot Notes - December 10, 2007

As of:

SPX 1513

Starting Friday morning, we got a few price- and sentiment-based indicators suggesting at least a short-term pause in the rally - nothing incredibly solid, but enough to suggest that buying into Friday's gap probably wasn't going to be the best idea.

For Friday, that was mostly the case, as stocks weren't able to go much of anywhere. This morning's breakout above Friday's high, though, was able to stick for more than a half-hour, which helps to suck in new buyers, and it took us to fresh intraday highs into the early afternoon.

I still don't think this behavior means much ahead of tomorrow's FOMC announcement, at least for short-term traders, as the volatility in the aftermath of the decision will likely wipe away whatever gains we see here before we finally see a more trending move one way or the other. The Fed Funds futures market is pricing in more uncertainty regarding the magnitude of a cut than we've seen in some time, so I suspect we could see even more volatility, then an even greater trend into the close, than we have most other times this year.

The fact that stocks have held up well today doesn't necessarily mean anything for tomorrow, at least when looking at the correlation between closes on the day prior to an FOMC announcement, and closes on the day of. These major economic events are things I would much rather react to, instead of anticipate, since it's so difficult to game the initial reaction with any consistency. The highest-probability trade surrounding these events tends to be a fade (i.e. a trade in the opposite direction of) an extreme move either way. I'll be flat for trading accounts heading into the decision, then we'll just have to sort it out afterwards.

As of:

SPX 1513

HELP ARCHIVE

Good Monday morning...We begin the new week with some moderate upside pressure in the indices as we await tomorrow's FOMC decision. Financials are attracting a strong bid despite yet another huge write-off by UBS, so as long as we see buying interest there, it's going to help prop up the broader market.

We left off on Friday with some minor signals suggesting lower short-term prices, such as the gap up open on the heels of the jobs report. Stocks didn't go much of anywhere to the upside after that gap, but neither did they collapse, instead forming one of the tightest intraday trading ranges we've seen in awhile.

Those tight ranges, when coming after a rally, tend to lead to lower prices over the next few sessions, but this week of course we'll be running into the FOMC decision, which will likely wipe out (at least for a few moments) any gains or losses seen during the prior few days.

The lack of real selling pressure on Friday has to be considered a positive, as once again the indices held up well despite coming into the day in very overbought territory, at least as defined by our more sensitive indicators. This continues to bode well for the intermediate-term, as it's a good sign of a healthy market. Given the 7% rally we've already witnessed, right within the range of the 5% - 10% suggested by the numerous studies we went over in November, I'm not sure how much juice is left, but until I see prices start to do something "wrong", I want to give the upside the benefit of the doubt in that time frame.

For the very short-term, things are looking pretty neutral. There are some negatives associated with Friday's trading, which we already went over, but it's certainly positive that we held so well in spite of being overbought, and now are seeing trade above Friday's highs. A reversal from here, especially below Friday's lows, would be an obvious negative, but again the FOMC decision tomorrow will have much more meaning in the short-term than any technical setup.

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