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WEDNESDAY, DECEMBER 26, 2007
Indices Continue to Hang Tough
12/26/07 4:15 PM EST
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As of: SPX 1483 |
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Coming into this week, we had a number of short-term measures that were pointing to the idea that it was unlikely we'd see more sustained upside until the indices took a breather. Overbought conditions, on the heels of an options expiration, have tended to precede weakness much more often than not.
The one big wildcard was (and is) seasonality, which is unmistakably positive as we all know at this time of year. Even still, looking at past occurrences of these types of conditions heading into the end of the year, we often saw as much weakness as strength.
That kind of battle is not one I want to fight. It seems I can make a valid argument for being long, and an equally valid one for being short, and that's not the type of situation in which I want to risk capital, so I'm staying mostly neutral for trading positions here.
My thought heading into the week was that we'd have one more opportunity to trade the "oversold in December" phenomenon that I'd harped on so much early last week. The longer we go without pausing, though, the less likely that's going to become, simply because the clock is ticking ever closer to year-end.
As I go over every year, the Nasdaq 100 in particular has a very nasty habit of correcting at least 5% within a 10-day window during January, so if we're going to try the long side again, then we need to see the setup fairly quickly. The past couple of years, the index shot higher to begin the new year, but that was after weak endings to the previous December.
The bottom line is that I'm doing very little here trading-wise. I'd like to see another opportunity for a low-risk long trade heading into the first couple sessions of the new year, but if we just hang around in overbought territory, then my focus will likely shift to the short side after the end of the year.
Have a great night and we'll see you tomorrow!
Not Much To Do With Opposing Forces At Work
12/26/07 3:10 PM EST
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As of: SPX 1483 |
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There's not much to go over heading into the close that we haven't already discussed earlier today or Monday, as the major equity indices continue to hang tough.
I mentioned earlier today that I could make a pretty solid argument for being heavily exposed to the long side right here...but I could make an equally compelling case for holding the opposite position, too. When I get those kinds of situations, I prefer to stay out and not risk capital on a poorly defined edge.
Because of that, I remain mostly in cash for trading accounts, and I don't see that changing anytime soon.
Expecting Some Overbought vs. Seasonality Chop
12/26/07 10:00 AM EST
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As of: SPX 1483 |
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Good Wednesday morning...We begin post-holiday trading with some moderate weakness in the major indices and broader sectors. Notably, financials and retail are leading us lower this morning and are in the process of giving back most of the gains from late last week.
Heading into this week, we had a couple of conflicting signals, those being a bias following option expiration (which suggested lower prices in the short-term), and pre-holiday seasonality (which argued for higher prices). It was slim pickings when looking for similar historical battles, but the couple of recent ones we'd found had weakness winning out.
That obviously didn't happen this time around, as least on Monday, as the stock indices rallied early and held fairly well the remainder of the day. We continue to have mostly positive seasonality here, though the pull isn't quite as strong or consistent the shorter-term we look. There have often been short-term declines between the Christmas and New Years holidays, though by the end of the year (and through the first couple trading days of the new year), any weakness has usually been more than erased.
After most exchange holidays, we see a post-holiday letdown immediately after the break. If you check out the Seasonality section of the site, you'll see that the day following an exchange holiday is typically the weakest of the days - except for Thanksgiving and Christmas, when the bias isn't nearly as consistent. Another factor in our current situation, though, is extremely overbought short-term conditions. Our STEM.MR Models are as stretched as they ever get at this point, and we rarely see stocks able to sustain much upside progress after readings like they're giving now.
Bottom line, I don't see a good setup here on either side. Longs can point to seasonality (a valid point) and moderately positive technical conditions, while shorts can point to grossly overbought conditions (an equally valid point). I don't like setups where I can make an equally cogent argument for either side of the trade, so I'm staying mostly flat for trading accounts.
All the best,
Jason Goepfert
President and CEO
Sundial Capital Research, Inc.
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