DAILY TECHNICAL MARKET COMMENT

By: Larry Katz

January 16, 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	01/12/01	01/11/01	01/10/01	01/09/01	01/08/01
Breadth oscillator	+275	+396	+484	+463	+543
Volume oscillator	+23.4	+57.5	+68.1	+46.5	+98.7
A/D ratio	1.32	1.47	1.58	1.56	1.66
Three day oscillator	+254	+453	+526	+247	+154
McClellan oscillator	+89	+110	+114	+93	+96
Open 10 day Arms	1.16	1.20	1.25	1.27	1.23
10 Day Arms	1.31	1.33	1.34	1.35	1.30
CBOE P/C ratio	.60	.48	.57	.89	.64
OEX P/C ratio	.58	.89	.61	.42	.92
New highs	108*	79	61	45	54
New lows	5*	16	13	10	15

*These are preliminary numbers and will be adjusted tomorrow

The DJIA lost 88 points and the S&P gave back about 8 points. Volume came in at 1.27 billion shares and that was down from Thursday a bit. The A/D line gained about 50 units. The new highs and the new lows contracted. The Russell 2000 gained 1.89 points. The short-term is neutral. The medium-term is neutral but improving. The Value-line data is not clean but on a preliminary basis it looks like it moved to new highs. This is in keeping with my preferred wave count but until I can confirm and gat accurate data I will have to maintain a no opinion. The NASDAQ Composite and the NASDAQ 100 recorded minor losses but held up far better then the DJIA or the S&P. The short-term is neutral. The medium-term is neutral but improving. The DJTA lost 45 points. I am neutral short-term but close to a sell signal. The medium-term is positive. The DJUA and UTY closed higher on Friday. They are still very oversold on a short-term basis and I remain neutral. The medium-term is negative and extremely so. Long-term I have moved to negative.

The hourly chart of the S&P from last Wednesday shows a clean five-wave pattern and the daily chart from last Monday’s low shows a three- wave pattern. The low on Friday moved above the peak of what could have been counted as wave 1 of a possible five-wave sequence from Monday. And that has made it difficult to count the decline as a fourth wave from Monday. It is not impossible as a triangle may emerge and if that is the case Friday could be viewed as the “a” wave and as long as the orthodox low of the triangle does not overlap wave 1 we still have a shot at a five. So far, however we have a three. As of this writing I see a lot of possible counts from the December 21 low including the possibility that the pattern from that low is tracing out a triangle. We do have so far at least a series of three wave rallies and declines. And how we progress this coming week, especially early on will be important. The DJIA slightly undercut its January 10 low but the decline on the hourly chart into Friday’s low is so far a three. I continue to see just far too many possibilities in regards to the DJIA over both the short and medium-term. I also believe that in the not too distant future the pattern will resolve but until that occurs I am going to be more of an observer in the DJIA. The NASDAQ 100 also shows a five-wave rally from Wednesday on the hourly chart and a three-wave pattern from Monday on the daily chart. The rally from Wednesday has not been confirmed as complete on the daily chart and that does allow for the pattern to extend. The decline on Friday did not overlap or even come close to what can be counted as wave 1 from Monday’s low keeping open a stronger possibility of a five wave pattern evolving from last weeks low. The NDX did move above the January 4 peak a rally that best counts as corrective on the hourly chart and this alone adds a lot of weight to the idea that the rally from last week is part of a bigger corrective pattern from either January 3 or December 21. However, the fact that the NDX did move below the December 21 low on January 3 did satisfy the minimum requirements for the completion of the post September 1 decline and that the NASDAQ is in the early stages of a large “b” wave going back to the March peak. Keep in mind that a corrective rally, no matter what degree does not have to begin with a five-wave pattern but could be a series of three’s. Support: S&P; 1303-1304, 1297-1298, DJIA; 10,480-10,500, 10,180-10,200, NDX; 2450-1455, 2420-2427, 2320-2330. Resistance: S&P; 1324-1326, 1333-1335, 1343-1346, DJIA; 10,677-10,684, 10,809-10,821, NDX; 2550-2554, 2612-2621.

The market closed lower on Friday but the results were mixed. The DJIA, as it had throughout the week was considerably weaker than the S&P and far weaker than the NASDAQ averages. The averages did bounce late in the session to close off their lows but also traced out a minor negative reversal pattern as early gains faded right near the opening. Volume eased slightly over Thursday’s total but some of that could be due to the coming holiday. In any case volume remains neutral. Breadth, in spite of the decline in the averages, ended the session slightly positive and this is a plus for the market. For the third day out of four we saw a drop in the number of new highs in spite of higher prices in the averages. This is a negative. However, the number of new lows was minimal and this is a plus.

The CBOE put to call ratio moved up a bit. It is negative and the 10-day moving average is dropping fast. The OEX ratio remains extremely low and very negative. The Rydex ratio eased a bit on Friday. It is close to where it was at the early January peak but could weaken a bit more before turning really negative. The asset levels in both Arktos and Ursa remain at their lowest levels in years and this is very negative. The breadth oscillator moved lower. It is back to neutral but high neutral and still closer to overbought but it is improving. The volume oscillator is neutral but also closer to overbought. The 3-day oscillator moved lower. It failed to generate a buy signal last week and is now on another sell alert. The McClellan oscillator moved lower. It is still close to overbought and short-term in a negative pattern. The 10-day and open 10-day Arms remain very oversold and bullish. The 5-day Arms is closer to neutral while the 21-day Arms is still very oversold. The daily range oscillators are neutral. The trend oscillators are negative on the DJIA and slightly positive on the S&P.

The market took a breather Friday and closed lower. The DJIA, as it has all week long was by far the weakest of the averages and in fact moved below Wednesday’s low. After its strong relative performance for most of the last quarter we should begin to expect a shift in relative strength. It is still too early to tell whether last week was the beginning of a medium-term shift back to technology or only a short-term reversal. However, internally things are shaping up to suggest that if a medium-term shift is not here yet it is not far away either. My expectation coming into the new year is that the market, or at least the S&P and NASDAQ averages were close to completing a medium-term bottom. My opinion has not changed and that remains my view and as such I expect to see a fairly strong rally take hold that could last for several weeks and perhaps into the spring. From an Elliott wave perspective I can make the case that the low is already behind us but can just as easily see a modest new low to complete a more complex pattern. The next few days from a wave perspective will tell us a lot and will be important in my view. The Momentum picture meanwhile remains mixed. The Arms indexes are the most bullish of the indicators while breadth oscillators are in the early to middle stages of correcting a very overbought condition in late December. The McClellan oscillator left a negative divergence in place in early January and is tracing out a short-term negative pattern. Price volume relationships have improved to neutral while breadth continues to give a good account of itself. Some of the positive breadth may be directly related to seasonal patterns but it is still acting well and remains a solid positive for the market. However, the new highs have begun to slip of late, with Friday showing another contraction in new highs while prices moved higher. Moreover, the peak readings for new highs were seen in the last week of December and have been diverging ever since. This is a clear short-term negative. Short-term sentiment has also slipped. A few days of rally and the CBOE put to call ratio drops sharply. It did pick up a bit on Friday but was still negative. Meanwhile, the Rydex ratio is back to where it was at previous short-term peaks and is slightly negative while the asset levels in both Ursa and Arktos are at multi year lows. This latter development clearly shows just how complacent things really are as very few seem willing to place their money in a position to play the downside. I am going to remain neutral on the short-term and see how things play out early this week. I am also neutral on a medium-term basis but with the idea that a bottom is unfolding. Long-term I remain bearish. The bonds were hit hard again on Friday. They are getting oversold on a short-term basis and could bounce at any time but they have not reversed the sell signal and remain negative both short and medium-term. A move above 51 on the XAU would most likely confirm that the post December 13 correction was complete. Fro now, however, I am going to stay neutral on the short-term. Medium and long-term I remain bullish and once this correction is complete a strong move above the December 13 high is expected.

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.