Snapshot Notes - August 1, 2008


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FRIDAY, AUGUST 1, 2008

Price Pattern Isn't Very Encouraging

08/01/08 9:05 AM EST

As of:

SPX 1251

HELP ARCHIVE

Good Friday morning...We begin the day with a slight bump up in the pre-market futures based off of a slightly better-than-expected jobs report, commodities including Oil continue to pull back and foreign markets are modestly weak.

Gap up openings on the morning of a payroll report have not had a good history since the October high. Over the following week, the S&P 500 has shown a negative return all four times averaging -3.2%, and with an average maximum risk (-3.6%) that was more than five times greater than the average maximum reward (+0.6%).

Going back to 1997, the bias was still negative but not nearly as skewed. The S&P was higher over the next week 40% of the time with an average of -0.6%. The average maximum risk of -2.4% was still greater than the average maximum reward of +1.5%, but obviously that's quite a bit better than what we've seen since last fall.

There's another pattern here that I find disturbing. I checked the history of the S&P 500 tracking fund, SPY, to find any time it had closed at at least a two-week high, dropped 1% or more the next day, and then gapped up +0.25% or more the following morning, which would fit our current pattern.

Buying the gap up opening and holding until the next day's close resulted in only 3 winning trades out of 23 attempts, a pathetic 13% winning percentage. The average return was -0.9%, and it sported an average maximum risk (-1.9%) that was more than twice as large as the average maximum gain (+0.7%). In addition, each of those three winning trades gave back all of their gains - and then some - over the next three trading days at most.

I noted yesterday afternoon that our shortest-term guides are mostly neutral, and other than some negative seasonality during the first two weeks of August, I didn't see much of an edge. That's still pretty much the case, as our Indicators At Extremes on the Daily Overview page has shrunk considerably and the number of bullish indicators about equals the bearish. The price patterns mentioned above are consistent enough to be a concern when combined with the negative seasonality we have now that I don't think a continued push higher will be sustained, but I don't really see the type of setup that would have me wanting to be aggressively against it.

On an intermediate-term basis, the technical setup was looking better until the last hour yesterday, as we had a chance to finally put together a string of higher highs and higher lows, coming out of severely oversold conditions, for the first time in a year. Unless the recent lows are broken and held below for more than a day or so, though, I still think that we'll see more of a recovery in the one- to three-month time frame.

All the best,

Jason Goepfert

President and CEO

Sundial Capital Research, Inc.

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