DAILY TECHNICAL MARKET COMMENT

By: Larry Katz

January 9, 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	Neutral	Neutral
Long Term	Bear	Bear

Indicator	01/08/01	01/05/01	01/04/01	01/03/01	01/02/01
Breadth oscillator	+543	+561	+510	+491	+424
Volume oscillator	+98.7	+117.1	+98	+102.6	+53.1
A/D ratio	1.66	1.68	1.65	1.64	1.52
Three day oscillator	+154	+37	+492	+796	+76
McClellan oscillator	+96	+103	+149	+168	+112
Open 10 day Arms	1.23	1.21	1.21	1.17	1.21
10 Day Arms	1.30	1.28	1.28	1.26	1.25
CBOE P/C ratio	.64	.63	.55	.48	.79
OEX P/C ratio	.92	.71	.83	.56	1.62
New highs	209*	60	135	125	83
New lows	19*	8	5	30	19

*These are preliminary numbers and will be adjusted tomorrow

The DJIA lost 40 points and the S&P lost 2.44 points. Volume was light at just over 1.1 billion shares. The A/D line added about 300 units. The new highs expanded and the new lows did as well. The Russell 2000 lost 1.50 points but did close off is low of the day. I am neutral for both the short and medium-term. The Value-line gained 1.38 points. The short and medium-term remains neutral. The NASDAQ Composite 11 points and the NASDAQ 100 gained 13 points. Both closed well off their lows of the day and not far from their highs. I see the possibility of a small rally but not enough to move me out of neutral for both the short and medium-term. The DJTA gained 28 points. It is very overbought short-term and I am going to remain neutral. Medium-term I am still very bullish. The DJUA and UTY closed higher. The short-term is still very oversold and further gains are likely. I am going to move from bearish to neutral on the short-term. Medium-term I am negative and long-term I am neutral but that latter is not far from an important sell signal.

The S&P moved well below the .618 retracement of the rally from December 21 to last Wednesday but it is still possible that the decline is a “b” wave of a flat from December 21. This would allow for a rally back towards or slightly through last weeks high. However, we are still faced with what can be counted as a five-wave pattern on the hourly chart from last weeks high into yesterday’s low. This is not a clean five and can also be counted as a three but the possibility of a five does have to be respected. In either case the S&P should b in a position to rally and the nature of that rally will be helpful in determining which count is correct. The DJIA moved slightly below the .618 retracement level of the rally from December 21 to last week and the hourly chart can also be counted as a five-wave pattern from last weeks high. As is the case with the S&P this five is not a clean five but is solid enough to respect it as such. The five down allows for a rally. The NASDAQ 100 hourly chart can also be counted as a five-wave decline from last Wednesday’s peak. And this five is a lot more clean that either the DJIA or the S&P. While there is always some doubt as to the pattern the fact that we can count the decline as a five on all three averages is important and until proven otherwise we should approach the averages with that in mind. Support: S&P; 1282-1283, 1250-1254, 1200-1204, DJIA; 10,500-10,520, 10,180-10,200, NDX; 2200-2204, 2050-2062, 1970-2000. Resistance: S&P; 1304-1305, 1322-1324, DJIA; 10,710-10,720, 10,830-10,844, NDX; 2307-2314, 2395-2407.

The averages closed lower but a late rally helped to pare those losses significantly with prices closing well of the lows of the day. The last hour, or more precisely the last 30 minutes was quite strong with the averages rallying into the close. The DJIA was actually a bit weaker than the S&P as the rebound was led by of all things technology stocks. Volume was back to what we had seen prior to last week’s explosion and was about average. We did see positive breadth. It was not great but it was positive. The new highs, also expanded a bit but only on a preliminary basis. The new lows also expanded but the absolute level was very low.

The CBOE put to call ratio was about in line with Friday and was slightly negative. The OEX ratio moved up a bit but it too was negative. The Rydex ratio is neutral. There was some minor improvement in the Ursa and Arktos asset levels but not a lot and these remain negative. The breadth oscillator was slightly lower but is still very overbought. The volume oscillator also eased a bit but it too is overbought and needs to correct. The 3-day oscillator moved up a bit but remains on a short-term sell signal. The McClellan oscillator moved lower. It is still close to overbought levels and also on a short-term sell signal. The 10-day and open 10-day Arms remain extremely oversold. The 5-day and 21-day Arms are also very oversold and bullish. The daily range oscillators are neutral. The daily trend oscillators are also neutral and could go either way.

Whether yesterday marked the end of the decline from last week or the first leg of a bigger decline that will ultimately see prices move below last weeks low is not clear. The mixed technical picture and wave strucure can support either view at this time. On the plus side we have a deeply oversold Arms indexes and breadth has been acting very well. In spite of the fact that the averages moved close to last weeks low the actual number of new lows was almost non-existent. This suggests that most stocks are holding up quite well and that what weakness we are seeing is being created by a small minority of the list. This quite often occurs near good trading lows. However, a number of breadth and volume oscillators remain deeply overbought. The breadth oscillator is deeply overbought and while it may be viewed as having reached levels that are consistent with a medium-term initiation phase short-term any way they are negative and need to correct. We have divergent sell signals in place on both the 3-day oscillator and the McClellan oscillator and volume indicators are also overbought. The latter did not reach thrust readings and that too is a problem. However, the biggest problem that I see continues to be from the short-term sentiment indicators. Specifically the CBOE put to call ratio and the Rydex statistics. What we continue to see is a quick drop in these indicators almost commensurate with a rally and that has continued to put a lid on any rally attempts, at least so far. This is not unlike what we saw throughout most of the spring last year and remains a big problem. Yesterday showed little change in these indicators from Friday. They are not bullish and in fact the asset levels in both Ursa and Arktos are considerably closer to levels seen at tops, not bottoms but they do allow for a bit more rally before they move back to where they were at last Wednesday’s peak. There is not a lot of room mind you but enough. I see enough to expect the late rally yesterday to continue and perhaps last for a couple of days. However, in spite of all the positives there are still a lot of concerns and while I may miss a good rally I am going to remain neutral for the short-term. Medium-term we may be getting closer but it looks to me like there is still some work to do and I am going to remain neutral. Long-term I remain bearish. I continue to view the bonds as being in a topping pattern and remain negative for both the short and medium-term. The correction from mid December in the XAU remains in force. The short-term is neutral and lower prices are expected. Medium and long-term I remain very bullish.

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 changes.

The hourly chart of the NDX below shows a clean five-wave decline from last Wednesday’s high into yesterday’s low.

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