DAILY TECHNICAL MARKET COMMENT

By: Larry Katz

January 5, 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	Neutral	Neutral
Medium Term	Bull	Bull
Long Term	Bear	Bear

Indicator	01/04/01	01/03/01	01/02/01	12/29/00	12/28/00
Breadth oscillator	+51	+49	+42	+42	+38
Volume oscillator	+98	+102.6	+53.1	+54	+33.4
A/D ratio	1.65	1.64	1.52	1.52	1.49
Three day oscillator	+492	+796	+76	+531	+1095
McClellan oscillator	+149	+168	+112	+156	+187
Open 10 day Arms	1.21	1.17	1.21	1.22	1.22
10 Day Arms	1.28	1.26	1.25	1.18	1.19
CBOE P/C ratio	.55	.48	.79	.67	.60
OEX P/C ratio	.83	.56	1.62	1.62	.80
New highs	270*	125	83	259	297
New lows	7*	30	19	34	47

*These are preliminary numbers and will be adjusted tomorrow

The DJIA lost 33 points and the S&P lost 14 points. Volume expanded reaching another record for the NYSE. The A/D line added about 200 units. The new highs, on a preliminary basis contracted as did the new lows. The Russell 2000 lost 7.19 points and closed near its session lows. I am moving to neutral on the short-term. The medium-term is positive but not exceptionally so. The Value-line lost 5.67 points. I am moving to neutral on the short-term. The medium-term is positive but only marginally so. The NASDAQ Composite lost 50 points and the NASDAQ 100 lost 68 points. They did close off their lows but not by a whole lot. I am moving to neutral on the short-term. The medium-term is positive but only slightly so. The DJTA had another solid session gaining over 130 points. I am going to remain neutral on the short-term and I am still bullish medium-term. The DJUA and UTY were down sharply and for the second day in a row they lost over 6%. They are negative short-term but could bounce at any time. The medium-term is negative and looks considerably lower. The long-term is neutral but not far from confirming a top of significance.

The S&P hourly chart from Wednesday’s low has not subdivided. The daily chart is positive but any move today below yesterday’s low would confirm the wave as complete. It is possible that the rally from Wednesday was all of a “c” wave from the December 21 low and that wave “a” from December 21 is over. There is, as discussed yesterday also the possibility that the pattern from December 21 will unfold as a double three and in that case the Wednesday’s rally would be viewed as the “a” wave of that second three. The “c” wave did fall short of being equal to wave “a” and that adds some support to the latter count. While it is my view at this time that the post December 21 rally is only the “a” wave of a larger pattern and should be followed by higher prices, it is possible that the rally is only a correction of the decline from mid October and that would allow for a move back below the December 21 low. This is not my preferred count but it is a count we need to be aware of. The DJIA hourly chart shows what is best counted as a corrective rally from Wednesday’s low and has not yet been able to break above the important resistance just above 11,000. There are still a number of possibilities for the DJIA and the best course of action for the DJIA is to just sit back and wait for it to tip its hand. The NDX hourly chart from Wednesday shows what is so far a three-wave pattern into Wednesday’s high. The daily chart remains positive leaving open the possibility that what we saw yesterday was a small fourth wave. If this is the case we need to rally today and a move below yesterday’s low prior to a move above Wednesday‘s high would confirm the rally as a three. Support: 1319-1321, 1300-1303, 1285-1290, DJIA; 10,845-10,852, 10,740-10,752, NDX; 2360-2368, 2255-2257. Resistance: S&P; 1340-1342, 1357-1360, 1369-1372, DJIA; 11,300-11,340, 11,750-11,800, NDX; 2688-2700, 2950-2975.

While the damage was not bad the averages did nonetheless close lower and not far from the session lows. The last hour was about flat. In spite of the weakness we did get a strong expansion in volume, which on the NYSE was a second straight record. The A/D line, which had been lagging for most of the day did manage to eke out a small gain and continues to show some decent relative strength versus the averages. The new highs are still quite strong but did ease off a lot from what we saw on Wednesday suggesting some minor weakness. The number of new lows was almost non-existent.

The CBOE put to call ratio moved up a bit but was still quite low and again negative. The OEX ratio did likewise but it too is still very negative. The Rydex ratio moved higher. It is neutral but closer to negative while the asset levels in both Ursa and Arktos moved down sharply. They are at or very near levels seen prior to the early November peak. The breadth oscillator moved higher and remains deeply overbought. The volume oscillator moved down a bit. It is overbought but not excessively so. The 3-day oscillator moved lower and is on a sell alert. The McClellan oscillator also moved lower. It is still overbought but also setting up some short-term divergences. The 10-day and open 10-day Arms remain very oversold and positive. The 5-day and 21-day Arms are also oversold and positive. The daily range oscillators are neutral. The daily trend oscillators are slightly positive.

The DJIA held up much better than the S&P and even the NYSE Composite was weaker so a reversion back to the way things were for the better part of 2000 was what we saw yesterday. On the surface yesterday’s price action can be viewed as nothing more than the beginning of a consolidation/correction of the extreme gains of Wednesday. In fact the S&P and the NDX did not even come close to initial support levels. However, the expansion in volume doers not jive with a typical consolidation pattern as volume tends to ease as a consolidation gets underway. The fact that we had record volume following a huge reversal day and showed no gain but instead a loss is a bit disconcerting. The short-term sentiment indicators are also a problem and as stated yesterday, “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”. We are still very overbought on few key indicators but also as discussed yesterday the breadth related measures have reached levels that can be viewed as minor momentum thrusts and as such should be viewed as a positive for the medium-term. I expect that the bulk of the rally from Wednesday has already been seen and that a correction of that rally is close at hand, as Wednesday did seem to stretch things a bit. In fact it is quite likely that the correction is already underway. There are certainly some areas that are already troubling and as such I clearly would not chase the market as a normal percentage correction could be quite sharp. In spite of the problems I am currently of the view that any decline no matter how sharp is directly related to the rally from Wednesday and in the case of the S&P perhaps back to the December 21 low. Even so, there is enough risk over the near-term to move from bullish to neutral on the short-term. I am going to remain bullish on the medium-term for the time being and see how the corrective process unfolds. As for the long-term I remain bearish and view any rally in the S&P and NASDAQ as a bear market rally. The bonds bounced back sharply yesterday on the heels of a weak equity market. Some further rally is possible over the short-term but the sell signal remains in place and I remain bearish on both a short and medium-term basis. The XAU broke far enough to suggest that the decline is correcting the entire post October 25 advance and looks to have more to go over the near-term. I am neutral short-term and remain 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