DAILY TECHNICAL MARKET COMMENT

By: Larry Katz

January 12, 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	01/11/01	01/10/01	01/09/01	01/08/01	01/05/01
Breadth oscillator	+396	+484	+463	+543	+561
Volume oscillator	+57.5	+68.1	+46.5	+98.7	+117.1
A/D ratio	1.47	1.58	1.56	1.66	1.68
Three day oscillator	+453	+526	+247	+154	+37
McClellan oscillator	+110	+114	+93	+96	+103
Open 10 day Arms	1.20	1.25	1.27	1.23	1.21
10 Day Arms	1.33	1.34	1.35	1.30	1.28
CBOE P/C ratio	.48	.57	.89	.64	.63
OEX P/C ratio	.89	.61	.42	.92	.71
New highs	178*	61	45	54	60
New lows	17*	13	10	15	8

*These are preliminary numbers and will be adjusted tomorrow

The DJIA gained five points and the S&P added over 13 points. Volume at 1.35 billion shares expanded slightly over Wednesday. The A/D line added about 400 units. The new highs expanded slightly over Wednesday while the new lows were about flat. The Russell 2000 gained 8.42 points. The short-term is neutral as is the medium-term. The Value-line pricing was not available. The NASDAQ Composite 116 points and the NASDAQ 100 added 110 points. Both sold off slightly near the close but still closed close to their highs. The short-term is neutral. The medium-term is neutral but improving. The DJTA lost about 19 points. This index is still very overbought short-term and I remain neutral. The medium-term is bullish. The DJUA and UTY closed with very heavy losses and well below last weeks low. The short-term is still very oversold but that obviously does not seem to matter especially when the medium-term is so negative. I am going to stay neutral short-term. I am negative medium-term and long-term as well.

The S&P moved right to second resistance and sold off a bit. The rally from Monday is so far a three-wave structure on the daily chart. The rally from Wednesday’s low can be counted as a five on the hourly chart. This rally is either a “c” or third wave from Monday but at this point it is not clear. The daily chart is still positive and until that turns down an extension is possible. However, the five-wave rally does set the stage for a decline of some sort. The nature of any decline will be important. There are two possibilities in regards to the rally. The first is that it is a “b” or second wave from last weeks high. In that case we should turn down hard and confirm the three-wave pattern. The other possibility is that the rally is a “c’ wave or second three from the December 21 low which would allow for a rally back above last weeks high. The DJIA moved above Wednesday’s high locking in the decline from last Wednesday as a completed wave on the daily chart. There are just too many possibilities from an Elliott perspective in regards to the DJIA but very short-term the possibility of a bit more rally due to the daily chart is not out of line. However, the medium-term picture is just not clear. Any five-wave pattern can be counted as a three. That is just the way it is with Elliott. Yesterday the NDX moved slightly above the peak of last Wednesday and invalidated a perfectly clean five-wave decline into Monday’s low. The rally is so far a three-wave structure on the daily chart, with the rally from yesterday’s low so far a corrective pattern on the hourly chart. This rally is best counted as either a “c” wave or a second three from last week. If the former than it is not complete and further gains should be expected. In any case we should be close to some sort of a decline and the nature and depth of that decline will be important. Support: S&P; 1314-1315, 1295-1297, DJIA; 10,500-10,520, 10,180-10,200, NDX; 2447-2452, 2395-2403, 2298-2308. Resistance: S&P; 1330-1332, 1343-1346, DJIA; 10,710-10,720, 10,830-10,844, NDX; 2580-2587, 2612-2621.

The DJIA did lag again and was barely positive but the S&P and the NASDAQ had solid sessions. We did see a bit of weakness into the close but it was only minor and the S&P still closed close to its high of the day. Volume expanded a bit and confirmed the price pattern. This is a plus. Breadth was modestly positive but not nearly as strong as it was last week and is beginning to weaken. The new highs did expand a bit over Wednesday. However, they are well below what we saw last week and considerably below their peaks seen in the last week of December.

The CBOE put to call ratio moved down sharply and was extremely negative. The OEX ratio moved up a little but is still negative and in fact excessively so. The Rydex ratio has continued to move higher and is not on the negative side of the equation moving well above levels seen at last weeks peak. The asset levels in Ursa and Arktos are well below where they are at the peak last week and in fact at their lowest level in years. The breadth oscillator is still overbought but is beginning to correct the excessive overbought condition. The volume oscillator moved lower. It is neutral but still close to overbought. The 3-day oscillator moved lower from near overbought levels and is back on a sell alert. The McClellan oscillator moved lower and the net change was less than five points suggesting a big move in price is close at hand for the short-term. It is also still overbought and diverging. The 10-day and open 10-day Arms did ease a bit but are still very oversold and positive. The 5-day and 21-day Arms are oversold and positive. The range oscillators are neutral. The daily trend oscillators are slightly positive on the S&P and modestly negative on the DJIA.

The technical picture at least from a momentum perspective remains mixed. The deeply oversold Arms is the biggest plus for the market. The breadth oscillator is still way overbought and is in the early stages of correcting that condition. However, it did reach levels in late December that are consistent with a medium-term momentum thrust or an initiation signal. This was somewhat but not completely confirmed by the McClellan oscillator. The volume indicators though did not reach confirming levels and they are also beginning to turn down from overbought levels. Volume flows have turned a bit more favorable but we are now seeing a clear sign of weakness from the new highs as they are well below their peak levels seen in late December. The most negative aspect of the market, however, comes from the sentiment indicators. The CBOE put to call ratio on only two days of rally moved back to excessive levels and the Rydex ratios are as bad as they were early last week and not far from where they were in mid December at that top. Once again a couple of days of rally and everyone is jumping on it afraid to miss the rally. This is just not how good medium-term or for that matter even short-term rallies that have some sustainability to them get underway. These indicators are again at levels that have consistently stopped rallies in the past and will most likely do so once again and soon. Given all of the above I am going to remain neutral for both the short and medium-term and given the sentiment picture it is likely that the best of this rally is behind us and that a decline is close at hand. Long-term I remain bearish. The bonds broke hard to the downside validating the sell signal given last week. We may bounce at any time but I remain bearish on both the short and medium-term and lower prices are expected. The correction from mid December in the XAU is still in force and still looks to have more to go. I am going to remain neutral on the short-term. Medium and long-term I am still very much bullish and expect that one this correction is complete a rally well above the December 13 peak should unfold.

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.