DAILY TECHNICAL MARKET COMMENT

By: Larry Katz

January 18, 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	Bear	Bear
Medium Term	Neutral	Neutral
Long Term	Bear	Bear

Indicator	01/17/01	01/16/01	01/12/01	01/11/01	01/10/01
Breadth oscillator	+396	+333	+275	+396	+484
Volume oscillator	+125.8	+61.4	+23.4	+57.5	+68.1
A/D ratio	1.41	1.37	1.32	1.47	1.58
Three day oscillator	+327	+398	+254	+453	+526
McClellan oscillator	+86	+95	+89	+110	+114
Open 10 day Arms	1.09	1.14	1.16	1.20	1.25
10 Day Arms	1.13	1.28	1.31	1.33	1.34
CBOE P/C ratio	.49	.56	.60	.48	.57
OEX P/C ratio	.92	1.13	.58	.89	.61
New highs	188*	98	63	79	61
New lows	14*	11	4	16	13

*These are preliminary numbers and will be adjusted tomorrow

The DJIA lost 68 points while the S&P added about 3 points. Volume came in at 1.32 billion shares and that was up from Tuesday. The A/D line added about 250 units. The new highs expanded slightly while the new lows were about flat. The Russell 2000 was about flat and closed near its low. The short-term is neutral. The medium-term is also neutral but is improving. The Value-line gained 4.69 points but closed well off its peak. It is neutral short and medium-term. The NASDAQ Composite gained 64 points and the NASDAQ 100 gained 88 points. They did, however, close well off their mid session peak and closed about in the middle of the days Range. The short-term is neutral but getting weak. The medium-term is neutral but improving. The DJTA lost 2 points. The short-term is neutral. The medium-term is positive. The DJUA and UTY closed a bit higher. They remain oversold short-term and could rally further. I am neutral short-term. Medium and long-term I am bearish.

The S&P moved close to its early January peak but could not break through. The hourly chart from Friday’s low is clearly corrective an in my view has no chance to evolve as an impulse wave. This rally is either the “a” wave of a second three from January 8 or was all of it. If the former then the S&P has a shot at moving above its early January high to complete a more complex corrective pattern from late December. I am also looking at the possibility that the /S&P is tracing out a triangle from December 21 with the rally from January 8 wave “c” of that pattern. If this is the correct count wave “c” is over and we still need to see wave’s “d” and “e” unfold before we get a quick break below the December 21 low. The DJIA was able to move above the January 9 high but the rally from last Fridays low is best counted as a corrective pattern on the hourly chart. Even so it is possible to count yesterday’s peak as the completion of a complex corrective pattern from either January 8 or 10 but at this time nothing is confirmed. Further weakness today, however, would in all likelihood indicate that the next wave down from the January 4 peak was underway. I am counting the rally from Tuesday’s low on the NDX as a fifth wave from January 8. The hourly chart from Tuesday shows what is best viewed as a three-wave pattern so a move back above yesterday’s high is the most likely outcome to complete this pattern. However, if that is to occur we need to rally almost from the opening as a move below yesterday’s low would confirm the rally as complete on the daily chart. I am currently counting this rally as a “c” wave from either the December 21 or early January low. There are two important Fibonacci relationships pointing to a target of 2645. This is where wave “c” would be equal to wave “a” It is also right at the .618 retracement of the decline from early December and right at the .383 retracement of the decline from October 20. This is obviously a very important level for the NDX and should provide some very stiff resistance. Support: S&P; 1319-1321, 1301-1304, DJIA; 10,500-10,510, 10,180-10,200, NDX; 2508-2514, 2445-2452 and 2330-2342. Resistance: S&P; 1338-1340, 1349-1350, 1357-1359, DJIA; 10,644-10,652, 10,810-10,822, NDX 2595-2602, 2645-2662.

It was another mixed session with the DJIA and the NYSE lower while the S&P managed a slight gain. The NASDAQ averages also closed higher. But the most important development yesterday was the fact that all of the averages closed well off their early and mid session peaks and in fact closer to their lows of the day. The last hour was also weak but we did get a bounce late in the day in the DJIA. The expansion in volume confirmed the negative price pattern. Breadth was slightly positive but nothing exceptional. The new highs expanded slightly over Tuesday but are still diverging rather seriously over levels seen in late December and the first week in January.

The CBOE put to call ratio moved lower and was quite negative. The OEX ratio was also lower and remains negative. The Rydex ratio is close to levels seen at tops and is also negative. The breadth oscillator moved higher and is back to overbought. The volume oscillator is also overbought and both are diverging. The 3-day oscillator moved lower. It is neutral but on a sell alert signal. The McClellan oscillator moved lower. It is neutral but in a negative pattern. The 10-day and open 10-day Arms moved lower. They are still oversold but not excessively so. The 5-day Arms is neutral and in fact close to overbought. The 21-day Arms is oversold and positive. The daily range oscillators are neutral. The daily trend oscillators are negative on the DJIA and slightly positive on the S&P.

The early gap opening in the averages failed to hold with prices selling off late in the day. The fact that breadth was positive is a plus but the expansion in volume is a big offset and the intra day pattern was also a modest negative. The breadth and volume oscillators are overbought and diverging. And given today’s takeaway figures those divergences will be confirmed. The McClellan oscillator is making a series of lower highs and lower lows and is also diverging while the 3-day oscillator is on a sell alert status. The Arms indexes are still positive but they are easing and not nearly as bullish as they were even last week. Short-term sentiment is also negative. Not only is the daily readings of the CBOE put to call ratio low, the 10-day moving average is close to where it was at the early November peak. The Rydex ratios are also negative and the assets in the Arktos and Ursa funds remain extremely negative. In addition, the latest reading from Investors Intelligence showed another small increase in bulls and decrease in bears. The level of bulls is the highest since June of 1999. In June of 1999 the market had been rallying for 8 months. At best now we have been going sideways for over a year and in the case of the NASDAQ down hard. The wave structure allows for a bit more rally over the next couple of days but given the weakening momentum picture and the obvious negative sentiment backdrop I would view any new highs as the finishing touches of the rally from early January and possibly as far back as December 21. I am moving from neutral to bearish on the short-term. Medium-term I am still of the view that we are in the process of completing a low. That may involve a teat or a modest breach of the December-January low. I am neutral with a bias towards bottoming. Long-term I am bearish. The bonds did rally yesterday but the rally was a bit more than I had anticipated. The indicators are still negative and the oversold condition has been relieved but I cannot rule out some further gains especially is stocks weaken. Even so the sell signal has not been reversed and I remain bearish both short and medium-term. There is no change on the XAU. I am neutral short-term and look for some further weakness. Medium and long-term I am bullish and expect to see new highs once the short-term correction is complete.

Stock traders sold short a ½ position in the QQQ’s per the morning hotline at 65 3/8. They closed at 63 7/8. Sell short another ½ position on any move above 65.60. Stop the entire position a 70 ¼. Make sure to call the intra day hotline for any possible changes. 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.