DAILY TECHNICAL MARKET COMMENT

By: Larry Katz

January 11, 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	10/10/01	01/09/01	01/08/01	01/05/01	01/04/01
Breadth oscillator	+484	+463	+543	+561	+510
Volume oscillator	+68.1	+46.5	+98.7	+117.1	+98
A/D ratio	1.58	1.56	1.66	1.68	1.65
Three day oscillator	+526	+247	+154	+37	+492
McClellan oscillator	+114	+93	+96	+103	+149
Open 10 day Arms	1.25	1.27	1.23	1.21	1.21
10 Day Arms	1.34	1.35	1.30	1.28	1.28
CBOE P/C ratio	.57	.89	.64	.63	.55
OEX P/C ratio	.61	.42	.92	.71	.83
New highs	169*	45	54	60	135
New lows	20*	10	15	8	5

*These are preliminary numbers and will be adjusted tomorrow

That was up from Tuesday but only slightly so. Volume came in at 1.28 billion shares, up slightly from Tuesday. The A/D line added 700 units. The new highs eased a bit and the new lows expanded slightly. The Russell 2000 gained 11.50 points and closed near the highs of the day. The short-term is neutral but could rally a bit more. The medium-term is neutral but is also improving. The Value-line gained 22.53 points. The short-term is neutral. The medium-term is neutral but improving. The NASDAQ Composite gained 83 points and the NASDAQ 100 added 112 points. Both closed near the high of the day. The short-term is neutral. The medium is neutral. The DJTA was near flat. The short-term remains very overbought and I remain neutral. The medium-term is positive. The DJUA and UTY closed lower. The short-term is very oversold and I am neutral but the chart pattern is close to another breakdown. The medium-term is negative and looks a lot lower. Long-term I am neutral but close to a major sell signal.

The S&P moved below Tuesday’s low stopping right at the .618 retracement of the rally from Monday to Tuesday’s early high. The rally from that low did move above Tuesday’s high by a modest amount and is also so far a three-wave pattern. Yesterday’s rally can be counted as a second three from Monday and as such it is possible to count the entire pattern from Monday as complete. However, the rally from yesterday’s low does not have any real Fibonacci relationships with the rally from Monday to Tuesday and there is still a way to go before we reach the .618 retracement of the decline into Monday. So while the rally may be complete both of these developments suggest that there is more to go. Interestingly, the rally from yesterday’s low would be equal to the initial wave at 1324 and that coincidently is also right at the .618 retracment of the decline into Monday’s low. The DJIA moved below Monday’s low before rallying late in the day. This decline may be counted as a fifth wave from last weeks peak but if so it is likely a diagonal triangle. It may also be counted as a “b” wave of an irregular from Monday and the current rally wave “c”. In either case the DJIA is in a position to rally further on a very near-term basis. The NASDAQ 100’s early low stopped right at a .618 retracement of the rally from Monday’s low. The subsequent rally carried prices above Monday’s high in what is so far a three-wave structure on the hourly chart. This puts the NDX in a similar position as the S&P except for the fact that the NDX has already slightly exceeded its .618 retracement of the decline into Monday. We are still faced with what is best counted as a five-wave decline into Monday’s low and as such we also have to approach the rally as corrective until proven otherwise. Support: S&P; 1303-1304, 1297-1298 1289-1290, DJIA; 10,500-10,520, 10,180-10,200, NDX; 2346-2350, 2305-2312, 2250-2260. Resistance: S&P; 1322-1324, 1330-1332, DJIA; 10,710-10,720, 10,830-10,844, NDX; 2430-2440, 2475-2485.

There were numerous price changes yesterday but in the end the market closed higher and not far off the highs of the day. The late rally was a plus and the last hour was fairly strong. Even the DJIA, which had spent the majority of the session in negative territory, was able to recoup and close with a modest gain. Volume expanded over Tuesday by a very modest amount. It was not enough to be of use but at least it did not contract. Breadth while not exceptional was nonetheless solid and the A/D line is performing very well. However, for the second day in a row the new highs contracted into a rally while the new lows expanded. The ratio between the 2 is still very much positive and the absolute level of the new lows is minor but it is worth noting and does raise a caution flag.

The CBOE put to call ratio while not excessive did nonetheless move lower and was bearish. The OEX ratio was also lower and it was excessive. The Rydex ratio has weakened and is not too far from its early January peak. The level of assets in both Ursa and Arktos moved lower and are also near where they were at last weeks peak. The breadth oscillator is still very overbought and is short-term negative. The volume oscillator moved higher. It is near overbought. The 3-day oscillator is close to overbought. The McClellan oscillator moved up a bit and is slightly overbought. It is, still diverging and remains negative. The 10-day and open10-day Arms are 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 neutral on the S&P but close to going positive and negative but only modestly so on the DJIA.

Technology stocks led the way again yesterday and the NASDAQ and S&P have not out performed the DJIA for three straight days. It is still to early to tell if this is only a short-term development or something that may last for a while but it is a change in what we have seen for the better part of the last four months. The technical picture remains mixed and difficult. I am and continue to be impressed by the positive breadth and the action of the A/D line. In most cases this has positive implications for stocks and needs to be respected. We are still very oversold as measured by the arms indexes and as longer term subscribers are aware this is one of my more important indicators. However, it is frustrating and a bit perplexing to see how poorly the market has reacted to this indicator in its current position. What I think is going on is that the fact that it is extremely oversold suggests a lot of negative momentum and until it begins to ease the market may not react positively. In fact what we may need to see is a divergent set up in which prices move lower while the Arms moves to a less oversold extreme not unlike a divergent signal on other indicators. Meanwhile, a number of other indicators such as the breadth oscillator and the McClellan oscillator are at or still near overbought levels. These need to correct and the fact that they are overbought is a short-term negative. However, the most negative development for the market remains sentiment. The put to call ratios are reflecting a high degree of complacency and again yesterday we saw a sharp drop in the CBOE ratio following just one day of rally. The Rydex ratio is back to near levels that have produced short term tops and more importantly the levels of assets in the bearish funds are at their lows. In addition, the most recent reading from Investors Intelligence showed another rise in bulls and drop in bears with bulls well over 56%. This is just no consistent with what is seen at market lows but more so like what is seen near market tops. The rally that began on Monday may have a bit more life in it and in fact that is my expectation. While there are definitely positives out there that make it tempting to jump back on the bullish side of the equation there are enough negatives to raise the caution flag and that keeps me in the neutral corner. The same is true of the medium-term and I remain neutral. Long-term I remain bearish. The bonds broke some minor support and are close to last weeks low. The sell signal from last week is looking better remains in place for both the short and medium-term. The correction from mid December in the XAU is still in play and a bit more weakness is expected. I am neutral short-term and remain bullish on the 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 changes.