Snapshot Notes - May 9, 2008


	Print Comments

FRIDAY, MAY 9, 2008

A Cautious Review

05/09/08 10:15 AM EST

As of:

SPX 1375

HELP ARCHIVE

Good Friday morning...We begin the day with moderate weakness in the major indices as traders are dealing with weak foreign markets, more questions about the health of the financials, and oil trading at another record (always a convenient excuse).

With increasing frequency over the past couple of weeks, we've had opportunities to go over some indicators and studies that had a bearish tint to them. We've gone over the problem with very low volume, breadth divergences, Nasdaq volume relative to NYSE volume, a rapid drop in pessimism from individual investors, an overbought Indicator Score, negative seasonality, among others...all within the context of a market that remains in a bear market and under potential resistance.

That setup has cause me to become more defensive than any other time since early January. While some of the longer-term studies we went over in January remain in effect and will continue to be so for a few months, on a more intermediate-term time frame (one to three months) things don't look quite so rosy anymore.

On a shorter-term basis, there are a couple of other potential negatives related to Wednesday's complete reversal of the prior day's move to a three-month high in the S&P 500, and yesterday's odd gain despite a 1% loss in both the BKX Banking Index and 10-Year T-Bond Yield.

All of that adds up to a market that should see further losses ahead. Coming into yesterday, we looked at a potential positive setup on a very short-term basis, as a couple of the major indices (primarily the Dow) were approaching potential support, at the same time our most sensitive indicators had rolled into solid oversold territory. Yesterday's mild recovery eliminated those oversold conditions, however, removing one of those positives.

Heading into today, I don't like to see large gap down openings in the direction in which I want to trade, as gaps are emotional traps that too often see snapbacks in the opposite direction. But given the setup we've been discussing, if we can go on to set lower intraday lows after the first hour of trading, then I'll be looking for the selling pressure to persist, perhaps dragging us down to the next area where short-term traders will be looking for a bounce - 1380ish on the S&P 500.

All the best,

Jason Goepfert

President and CEO

Sundial Capital Research, Inc.

Forwarding or otherwise distributing this copyrighted material is a breach of your subscriber agreement. Violators are subject to termination of their subscription with any received subscription fees forfeited. Any references to historical performance are based on data we deem to be reliable, but are based upon feeds from third parties. We do not recommend subscribers take positions based on data presented here alone, but rather incorporate it into a comprehensive investment outlook.