Snapshot Notes - December 14, 2007

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FRIDAY, DECEMBER 14, 2007

Ugly All Around

12/14/07 4:30 PM EST

As of:

SPX 1481

I mentioned this morning that I had to attend a closing for our old house, which finally sold after about 8 months on the market. I tell ya, if I had any doubt about how depressed the housing market is, I don't now.

The closing itself took just over 3 1/2 hours, a ridiculous amount of time for what was just a simple transaction. The problem? Title companies, lenders and closers have been laying off so many folks that everyone was under-staffed.

The closer that had to do a final review of the loan docs before cutting the checks decided not to show up, and there was nobody else at what used to be a relatively large organization who could do it.

The two real estate agents who were there were ecstatic to finally be closing a sale. Their outlook on the market was not just gloomy, it was outright depressing. These were not newbies, either - both had more than 25 years' experience. The one bright spot in their mind was that sellers were finally starting to lower prices which might help to facilitate some sales, and buyers were starting to show more interest, but overall I was surprised - ever since I've known ours, she has been nothing but cheerily optimistic.

More shocking to me was their (multiple) tales of abandoned homes. Families picking up and going elsewhere, letting the bank take their house, and leaving toys, clothes, even pictures behind. The banks want nothing to do with them, so all utilities get shut off, and in Minnesota during the dead of winter it's hard to show a house with a flashlight and 0 degree temps. They were running into that situation time and time again.

I left there amazed at just how deep this problem has become. Minnesota has issues with subprime issuance, but housing values never took off like they did in many other parts of the country. I'm not sure if the problem has been so fully recognized that we're near a plateau, but frankly I couldn't believe at just how coming-apart-at-the-seams the whole transaction seemed.

My mood wasn't helped a whole lot by continually sliding equity indices either. The banks weren't able to muster even a modest oversold rebound despite the pounding they've taken the past three days, and all the major indices I watch have erased the "tails" left by the past two days' afternoon rebounds. A market that cannot rally from oversold conditions is not one in which I want to be an aggressive buyer, and we're seeing signs of that kind of failure here.

The S&P 500 dropped below the 1470 area at the close, which is a level I wanted to see hold. After intraday reversals like we saw on Wednesday, a violation of that day's low has often ushered in more short-term pain, so I suspect that if we can't reverse pretty much immediately on Monday, then we have a date with 1460 and possibly lower.

Today's ugly performance could perhaps be a bit more tolerable if it generated some "excessive pessimism" extremes among the guides I watch, but few of them are hinting at that. Most remain neutral and not giving a suggestion that the selling pressure has been "too much, too soon". We'll get a better read on them after the close and with some of the data that comes out over the weekend, but I'm significantly less optimistic this afternoon than I was this morning. Friday couldn't have come at a better time.

The latest Commitments of Traders report, released this afternoon and covering positions as of this past Tuesday, didn't show much of a change from the prior week. Commercial hedgers reduced their net long position in the major equity index futures by a nominal amount, while small speculators increased theirs again this week.

Those "dumb money" traders have now more than doubled their net long exposure since September, including more than $8 billion during the rally since mid-November. If they add another $5 billion or so, it would give a "sell" signal for the market in general by matching extremes seen at prior tops.

There isn't much to note on the Nasdaq 100 futures. "Smart money" commercial hedgers added a bit to their net long position, but they are still in what I would consider neutral territory with a $2.6 billion net long position. A push over $3 billion is what I'd want to see to have more confidence that they are aggressively accumulating contracts in anticipation of a lasting rally.

Have a safe and relaxing weekend and we'll see you next week!

Just a Quick Note

12/14/07 9:30 AM EST

As of:

SPX 1481

HELP ARCHIVE

Good Friday morning...This will be an exceptionally short note this morning - our old house somehow miraculously sold after 8 months on the market, and I have to attend the closing.

We're getting a big gap down opening this morning as that 1490 area on the S&P proved to be another point of inflection for short-term traders. I've been noting that I wanted to see the index re-capture that area to have more confidence in the idea that the recent short-term oversold conditions were enough to bring in sufficient buying interest, but we're not getting that evidence this morning.

I've also been keying off this week's lows at 1470, with a trade below there ushering in a handful of rather ugly precedents, at least covering the next couple of sessions. If we can hold above that general area this morning, considering the moderate positives we went over yesterday (long "tails" on the daily charts, oversold short-term models, "Fed reversal" pattern, seasonality, etc.), I still won't think things look too bad for the short-term. If not, and that 1470 area breaks, then I suspect we'll at least hit 1460, which is an area I targeted earlier this week for potential support. I'm not buying any into the gap, rather I want to wait and see if the recent lows from the past couple of days can hold.

All the best,

Jason Goepfert

President and CEO

Sundial Capital Research, Inc.

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