DAILY TECHNICAL MARKET COMMENT

 

By: Larry Katz

January 4, 2001

 

	DJIA	S&P 500
Support	9450-9500, 9000-9050	1205-1214, 1155-1166
Resistance	11,000-11,050 11,750-11,850	1450-1455, 1550-1570
Short Term	Bull	Bull
Medium Term	Bull	Bull
Long Term	Bear	Bear

 

Indicator	01/03/01	01/02/01	12/29/00	12/28/00	12/27/00
Breadth oscillator	+49	+42	+42	+38	+24
Volume oscillator	+102.6	+53.1	+54	+33.4	-10.9
A/D ratio	1.64	1.52	1.52	1.49	1.34
Three day oscillator	+796	+76	+531	+1095	+927
McClellan oscillator	+168	+112	+156	+187	+146
Open 10 day Arms	1.17	1.21	1.22	1.22	1.20
10 Day Arms	1.26	1.25	1.18	1.19	1.18
CBOE P/C ratio	.48	.79	.67	.60	.72
OEX P/C ratio	.56	1.62	1.62	.80	.81
New highs	337*	83	259	297	254
New lows	31*	19	34	47	67

*These are preliminary numbers and will be adjusted tomorrow

 

The DJIA gained 299 points and the S&P 64 points. Volume was 1.87 billion shares expanding significantly and reaching a record. The A/D line added 1400 units. The new highs expanded and the new lows did as well. The Russell 2000 gained 21.89 points and closed on its session highs. The short-term is bullish and I am moving from neutral to bullish on the medium-term. The Value-line gained 33 points and also closed near its high for the day. The short-term is bullish and I am moving to bullish on the medium-term. The NASDAQ Composite gained 325 points and the NASDAQ 100 gained just under 400 points. The short-term is bullish but extended. I am moving to bullish on the medium-term.  The DJTA gained 140 points. I am neutral short-term and remain bullish on a medium-term basis. The DJUA and UTY were hit extremely hard losing nearly 6% on the day. I am moving back to bearish on both the short and medium-term. The long-term is neutral but closer to going negative.

 

The S&P was able to hold above the December 21 low and rally above the high recorded last week. The decline into yesterday’s low, which had looked impulsive early in the day did turn corrective and is best counted as a “b” or X wave from December 21. I am approaching the rally from yesterday’ early low as a “c“ wave or a second three from December 21. While it is still possible that the S&P needs to take out the December 21 low to complete the post September 1 decline it is more likely that December 21 did in fact complete that low and the rally from December 21 is the first wave of a larger pattern. At last that is how I am going to approach the pattern at this time. The DJIA moved above the early November peak stopping right at important resistance just above 11,000. There are still a number of possibilities regarding the DJIA and those will be discussed in this week’s letter. Suffice it to say that a strong move above  resistance would have to be conformation that a rally to new highs in the DJIA would be a very good possibility. The NASDAQ 100 gave us that modest new low and seems to have completed the post September 1 pattern. I saw seems to because there is still a possibility that a break to slightly lower lows could still occur but given the technical backdrop that appears very unlikely. I am going to then approach the NDX with the idea that yesterday did complete the pattern and that a solid corrective advance is underway now. Support: S&P; 1319-1321, 1300-1303, DJIA; 10,845-10,852, 10,740-10,752, NDX; 2360-2368, 2255-2257. Resistance: S&P; 1357-1360, 1369-1372, DJIA; 11,300-11,340, 11,750-11,800, NDX; 2688-2700, 2950-2975.

 

The market put in a superb performance yesterday. All of the averages, with the exception of the utilities closed sharply higher. The last hour was strong and most all of the averages also closed near the highs of the day. Volume expanded sharply on the day and in fact was the single highest day in NYSE history. Breadth was also solid with the A/D line at nearly a 2 ½ to 1 positive. The new highs did expand sharply over what we had on Tuesday but did not move above the level seen on December 28 leaving a potentially negative divergence. The new lows were minor and in fact failed to expand much in spite of the fact that the averages moved below Monday’s low.

 

The CBOE put to call ratio moved down sharply and was near excessive levels. The OEX ratio was also very low and very negative. The Rydex ratio on Monday moved back to bullish levels, however, the asset levels in both Ursa and Arktos remain low and closer to levels seen near tops. The breadth oscillator is very overbought but also at levels that could be viewed as a minor thrust. The Volume oscillator is also overbought but not yet close to thrust type readings. The 3-day oscillator moved back above the +600 level but is below the level seen on December 28 setting up a possible divergent signal, but a signal that could take a day or two to manifest. The McClellan oscillator is overbought and also diverging slightly from last weeks peak. However, it is strong enough to suggest that some positive momentum has been generated. The 10-day and open 10-day Arms are still oversold and positive. The 5-day and 21-day arms are also oversold and positive. The daily range oscillators are neutral but improving. The daily trend oscillators are slightly positive.

 

I had been expecting a deep test or modest new low in the NASDAQ and the S&P to set the stage for a good medium-term low. I had not expected it to occur so quickly but given what we saw yesterday it looks like that is what in fact happened. A number of indicators are very overbought but at the same time a number of these same indicators have reached levels that are consistent with thrust or kick off type readings. I am a bit concerned with the sharp drop in the CBOE put to call ratio yesterday suggesting once again that the often wrong options traders are again just too eager to jump on the rally. This could carry on for a bit longer but even in the early stages of a good medium-term advance this has to be viewed as a short-term problem that could set up for a decline of some sort. However, the Arms indexes remain very positive across the board and the strong momentum readings give the bullish argument a lot of ammunition. We should see some follow-through buying and perhaps a couple more days of rally but it is likely that the initial phase of this advance is close to over and a modest correction of the rally is close. Even so the short-term buy signal from last week remains in place and I am also moving from neutral to bullish on the medium-term. The long-term is mixed. I see the strong likelihood of new highs in some of the averages such as the NYSE Composite and the DJIA but do not see the same for the NASDAQ. I am going to remain bearish on the long-term. The bonds broke badly as stocks rallied and have finished the topping process going back to at least November but more likely September. We could get a bounce at any time, especially if stocks correct a bit. Even so, I am moving from neutral to bearish on both the short and medium-term. It is difficult at this point to tell whether the XAU is correcting only the post December 13 rally or the entire pattern from October 25. In either case it does not look complete and a move below 49.50 would confirm the latter. I am neutral short-term and bullish medium and long-term.

 

Stock index futures traders are flat. Stand aside for the morning. Rydex switchers are holding a 20% Ursa and 40% Precious Metals position. Make sure to call the Noon Pacific hotline for any