DAILY TECHNICAL MARKET COMMENT

By: Larry Katz

January 17, 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	01/16/2001	01/12/01	01/11/01	01/10/01	01/09/01
Breadth oscillator	+333	+275	+396	+484	+463
Volume oscillator	+61.4	+23.4	+57.5	+68.1	+46.5
A/D ratio	1.37	1.32	1.47	1.58	1.56
Three day oscillator	+398	+254	+453	+526	+247
McClellan oscillator	+95	+89	+110	+114	+93
Open 10 day Arms	1.14	1.16	1.20	1.25	1.27
10 Day Arms	1.28	1.31	1.33	1.34	1.35
CBOE P/C ratio	.56	.60	.48	.57	.89
OEX P/C ratio	1.13	.58	.89	.61	.42
New highs	172*	63	79	61	45
New lows	15*	4	16	13	10

*These are preliminary numbers and will be adjusted tomorrow

The DJIA gained 127 points and the S&P added 8 points. Volume totaled 1.19 billion shares down a bit from Friday. The A/D line added about 600 units. The new highs and the new lows expanded. The Russell 2000 gained 7.53 points. I am neutral short-term but the rally looks to have a bit more to go. The medium-term is neutral but also improving. The NASDAQ Composite lost 8 points and the NASDAQ 100 gave up 35 points but both closed well off their low of the day. The short-term is neutral but the rally from last week looks to have more to go. The medium-term is neutral but is also improving. The DJTA gained 62 points. The short-term is neutral. The medium-term is positive. The DJUA and UTY closed sharply lower but well off their worst levels. They are still very oversold short-term and I am neutral. The medium-term is negative as is the long-term.

The S&P held Friday’s low and stayed below Friday’s high keeping open the possibility that a fourth wave triangle from last Monday is in progress. If that is the case than yesterday’s rally was the “b” wave of that pattern and we still have a bit of work to complete the structure. A move early today above Friday’s high would invalidate the triangle count leaving us with either a seven-wave corrective pattern from last Monday. Of course it is possible that what we have developing in the S&P from last Monday is a series of 1’s and 2’s but that is a very low probability count at this time. The are still far too many possibilities in regards to the DJIA both short and medium-term to present. I am still looking at a potential triangle of some sort and degree going back to the October low. However, if there is a triangle it is still next to impossible to tell whether it will resolve in a bullish or bearish fashion. It is possible to count the decline from January 3 to January 8 as a five and everything from that point as a complex corrective pattern with a complex “b” wave of an irregular completing early yesterday. If correct than the rally from yesterday’s low is a “c” wave. This rally cannot yet be counted as anything close to a five, so if correct the rally has more to go more to go. A failure to rally further would confirm another three in place invalidating this particular count. The NASDAQ 100 moved below Friday’s low confirming the rally from last Wednesday’s low as a completed wave on the daily chart. The rally from last Monday is so far a three-wave structure on the daily chart. Yesterday’s low did not overlap would may be counted as wave 1 from Monday and the decline stopped where it had to stop in order for it to be a possible fourth wave from January 8. The decline from Friday is also so far a three-wave pattern on the hourly chart. A move below yesterday’s low especially early would put a big dent in the five-wave count and could actually leave a five-wave pattern on the hourly chart to the downside. While not completely necessary it would be best if the rally is to evolve as a five for the NDX to move up sooner rather than later. Support: S&P; 1316-1317, 1303-1304, 1297-1298, DJIA; 10,480-10,500, 10,180-10,200, NDX; 2420-2427, 2320-2330. Resistance: S&P; 1330-1332, 1343-1346, DJIA; 10,677-10,684, 10,809-10,821, NDX; 2550-2554, 2612-2621.

The market had another one of its now infamous mixed performances yesterday but this time it was the DJIA that was the stronger of the averages. The S&P did close higher but also lagged badly while the NASDAQ averages closed lower. Prices did, however, rally late in the day with the NASDAQ closing well of its low while the DJIA and even the S&P closing close to the highs. Volume eased a bit from Friday, which was lower than Thursday’s total and that is a negative pattern. Breadth though was positive and continues to do better than the averages. The new highs did expand, at least on a preliminary basis but is still well below levels seen in the first week of the year and further below the late December totals. The new lows while still quite benign did expand.

The CBOE put to call ratio moved lower. It was not excessive but still quite bearish. The OEX ratio moved up a bit and was neutral. The Rydex ratio is near levels seen at the late December and early January short-term peaks but still has some room before reaching levels seen in mid December. The levels of assets in the bear funds remain near all time lows. The breadth oscillator is close to overbought and is beginning to develop negative divergences. The volume oscillator is also close to overbought and it too is showing potential divergences. The 3-day oscillator is neutral. The McClellan oscillator is close to overbought and diverging. The 10-day and open 10-day Arms moved a bit lower but are still quite oversold and bullish. The 5-day Arms is neutral and the 21-day Arms is oversold and bullish. The daily range oscillators are neutral. The trend oscillators are negative on the DJIA and slightly positive on the S&P.

The technical position of the market continues to give off mixed and conflicting signals. The Arms indexes although easing a bit remain deeply oversold and that is a clear and definite plus for the market. However, breadth related oscillators remains near overbought levels and are beginning to show possible negative divergences. Breadth has not been excessively positive but it has been positive and consistently so. Volume on the other hand has been neutral at best and the last few days has seen volume slow even as the market has moved or tried to move higher. We are seeing a similar pattern in the new highs as they are considerably below their peak readings seen in late December. Short-term sentiment indicators are also weak with the CBOE put to call ratio moving down sharply after only a few days of rally and the Rydex statistics closer to levels seen near tops not bottoms. They do have a bit of room before turning extremely negative but they are clearly not favorable. The rally that began last week may have a bit more to go over the very near-term but given the technical picture, especially the sentiment indicators, it is my view that the best of this rally is already behind us and short-term I remain neutral Medium-term I am still of the opinion that the S&P and NASDAQ averages are in the latter stages of completing a bottom that once in place will allow for a strong bear market rally that should last well into the spring. However, it does not look to me that this process is complete. It may involve a modest lower low or just a test of the lows but there is still risk and while we may be closer we are not yet there at least that is how I see it today. I am going to remain neutral on the medium-term but neutral with a bottoming bias. Long-term I remain bearish. The bonds are getting oversold. They are closer to a bounce but both the short and medium-term remain negative. The XAU is still in a corrective mode short-term and I remain neutral. Once this correction has run its course I expect to see a strong rally unfold and carry prices well above the mid December peak. I remain bullish for both the short and medium-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.