Snapshot Notes - April 28, 2008


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MONDAY, APRIL 28, 2008

Persistent Trend Feels Like a Holiday

04/28/08 2:35 PM EST

As of:

SPX 1375

HELP ARCHIVE

It's been a kind of odd day today, as the indices have enjoyed a loose trend day which is not being accompanied by major price gains. The trading pace feels very much like what we often see on the day before an exchange holiday, like the sellers have simply decided to step away.

The extreme price persistency pushed the Price Oscillator that we update intraday up to 70% for the Nasdaq 100 earlier this afternoon. That is a truly extreme reading, and the type of thing we typically only see on major rallies. I thought it odd that we were getting such a reading today despite that index not being at even a three-day high, so I checked for when that's happened in the past.

Going back to the summer of 2002, I could find 37 other days where this had happened. Over the next day, returns in the NDX were mixed to slightly negative. By two days later, the index had hit its most consistent point, being negative 64% of the time by an average of -0.4%. That's not hugely negative, but it's enough to make me wonder about the sustainability of today's rise. There were three other occurrences since the October 2007 high, those being near the close on 11/13/07, 1/10/08 and 3/18/08 - all of which preceded some short-term weakness.

A lot of what's going to happen over the next few days is going to be news-driven. We are of course still in earnings season, but most importantly we have a number of widely-watched economic releases coming out on Wednesday morning and the FOMC decision later that afternoon. Perhaps we'll just see more of this drifty behavior until those big unknowns are out of the way, but given what we went over this morning and in the paragraphs above, I have to think that sustainable upside is becoming limited.

I don't like to take big positions ahead of what will likely be market-moving events on Wednesday, but I'm becoming more interested in the short side of the Russell 2000 as it nears 730, with a move back under 720 being good confirmation that we've probably peaked for now. I would not want to hold short if it moves over 745ish, so that's the setup I'm watching most carefully here, particularly as we head towards the close.

Mixed Signals Ahead of Data Deluge

04/28/08 10:20 AM EST

As of:

SPX 1375

HELP ARCHIVE

Good Monday morning...We begin the day with some moderate upside in the major indices, and mixed trading in the broader market sectors. We again have an odd mix among the sectors, with Brokers, Gold and Biotech leading while Semis, Banks and Retail lag. We saw this kind of mixed market on Friday, too, which has been unusual to see during the rally from the March lows.

Last week, we went over a few signs that sentiment was beginning to enter that "too far, too fast" stage that we've been on the lookout for since the March lows. Up until the past few days, we hadn't seen too many signs of that.

We're still not seeing many, but there are a couple of potential trouble signs, like the exceptionally low volume across the board, a renewed interest in risk among Rydex mutual fund traders and a sudden drop in pessimism among individual investors.

All of those are what I would consider minor negatives, and nothing to get too hot and bothered about, but they are enough to cause me to become more cautious on the intermediate-term outlook. That's especially the case since the market has already met many of the targets we went over in March (of a one- to three-month rally of 5% - 15%) and as far as I'm concerned we continue to be mired in a bear market.

With that view, I'm starting to shift to a more equal preference between going long and selling short on a shorter-term basis as opportunities arise. Those opportunities, though, have been relatively scare lately, as I haven't been able to find much of what I would consider a solid short-term edge over the past week as the indices chopped their way modestly higher.

There still isn't much I'm seeing here that has me itching to be pushing either way. We are perhaps very modestly overbought, and still under that 1400 - 1405 resistance area on the S&P 500 that so many traders have on their radar. I noted last week that while it's just idle speculation on my part, I can't help but wonder if we'll see a push over that hump that triggers a bunch of buy-stop orders, then a fall back below. Making things trickier is the deluge of economic data coming our way by mid-week, including the FOMC interest rate decision. This will be the first meeting in months that traders are kinda sorta hoping the Fed doesn't do anything at all.

With all these cross-currents and no strong edge that I can identify, I'm still looking at taking only very minor positions if anything here. I've had the Russell 2000 on my radar as a potential short if it wasn't able to mount that 720ish area that has proven a difficult barrier for the past few months, and it's still toying with that level now. A move over 740ish would look like a legitimate breakout to me. I'm also looking at a potential position (again, only very small size) in DUG, the double-inverse oil fund based on one of the Data Briefs I posted this weekend. It's not a perfect proxy for a bet against oil or especially gasoline, but it's a readily tradeable alternative.

All the best,

Jason Goepfert

President and CEO

Sundial Capital Research, Inc.

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