DAILY TECHNICAL MARKET COMMENT

By: Larry Katz

January 19, 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	01/18/01	01/17/01	01/16/01	01/12/01	01/11/01
Breadth oscillator	+278	+396	+333	+275	+396
Volume oscillator	+71.1	+125.8	+61.4	+23.4	+57.5
A/D ratio	1.24	1.41	1.37	1.32	1.47
Three day oscillator	+333	+327	+398	+254	+453
McClellan oscillator	+82	+86	+95	+89	+110
Open 10 day Arms	1.09	1.09	1.14	1.16	1.20
10 Day Arms	1.10	1.13	1.28	1.31	1.33
CBOE P/C ratio	.59	.49	.56	.60	.48
OEX P/C ratio	1.17	.92	1.13	.58	.89
New highs	150*	101	98	63	79
New lows	10*	7	11	4	16

*These are preliminary numbers and will be adjusted tomorrow

The DJIA gained 94 points and the S&P added 18 ½ points. Volume was 1.36 billion shares up slightly from Wednesday. The A/D line added about 300 units. The new highs eased and the new lows did likewise. The Russell 2000 gained 1.17 points but did not come close to Wednesday’s high. The short-term is neutral. The medium-term is neutral but improving. The Value-line gained 5.64 points but like the Russell it did not get back Wednesday’s peak. I am neutral short and medium-term. The NASDAQ Composite gained 86 points and the NASDAQ 100 added 111 points. Both moved above Wednesday’s peak. The short-term is neutral. The medium-term is neutral but improving. The DJTA lost about 8 points. The short-term is neutral but weak. The medium-term is positive. The DJUA and UTY closed higher. They are still very oversold short-term and could rally further. I am neutral short-term. Medium and long-term I remain bearish.

The S&P moved above both Wednesday’s and the January 4 peak. This has eliminated the possibility that the S&P was tracing out a triangle from December 21. The pattern is getting complex and a clear count is difficult but there is one thing that is clear and that is the fact that the rally from January 8 and from Tuesday is corrective. There is a possibility that the rally from January 8 is a “c” wave diagonal triangle from December 21. The fact that the sub divisions on the daily chart have unfolded in corrective fashion on the hourly chart does support this as a possible count. With that in mind it is possible that yesterday’s rally did indeed complete wave “e” of the pattern but it is just as likely that the rally from Tuesday’s low is only the “c” wave. While the wave structure can support the idea that yesterday was it, it seems more likely that the rally has a bit more to go both on the daily and hourly chart. The DJIA was able to move above yesterday’s high while the daily chart is still positive. However, this did nothing to clear up the short-term uncertainties in this average and for now we are in a wait and see mode. The NASDAQ 100 moved below Wednesday’s low and we now have a seven-wave pattern from January 8 to yesterday’s high on both the daily and hourly chart. There are three possibilities regarding the NDX. The first and most obvious is that the rally from January 8 is a corrective one and not a “c” wave from January 3. It is also possible that wave 5 from January 8 is subdividing with yesterday’s rally the “c” or third-wave of that pattern. The latter and clearly the most bullish is that the NDX is about to enter a third of a third acceleration. The NDX did slightly penetrate the resistance given yesterday at 2645 but it is not nearly enough to be a problem as yet. Support S&P; 1335-1336, 1323-1325, 1305-1308, DJIA; 10,500-10,510, 10,180-10,200, NDX; 2620-2625, 2585-2593. Resistance; S&P 1357-1359, 1368-1370, DJIA; 10,810-10,822,11,000-11,025, NDX; 2700-2708, 2785-2795.

The DJIA, which had been stronger earlier in the day began to lose some of its relative strength as the “tech” stocks rallied during the session and by the close was a bit weaker. The NASDAQ averages closed near the high of the day and the S&P not far from it but the DJIA sold off late in the session and closed well below its high. Volume was only slightly ahead of Wednesday’s pace but it did expand and that did confirm price. Breadth was positive but only slightly positive and is beginning to weaken. The contraction in the new highs remains a problem and the divergences from this area are becoming more pronounced. However, one strong day could reverse what is at present a negative situation.

The CBOE put to call ratio did move up a bit but is still negative. The OEX ratio moved to a more neutral reading on Thursday. The breadth oscillator is still close to overbought levels but did move lower locking in a short-term negative divergence. The volume oscillator did likewise. The 3-day oscillator was almost dead flat. It is neutral but weak. The McClellan oscillator moved lower and is on a short-term sell signal. The 10-day and open 10-day Arms are still oversold but only slightly so. The 5-day Arms is neutral but closer to overbought and the 21-day Arms is oversold and positive. The daily range oscillators are neutral. The trend oscillators are negative on the DJIA and slightly positive on the S&P.

The negative price action of Wednesday had little effect yesterday as prices rallied to move above the peak recorded on Wednesday, at least in some of the averages. The Arms indexes remain positive and that in my view is the biggest plus for the market currently. Other momentum measures have turned lower and locked in some minor negative divergences and have done so from overbought levels. In a period of strong momentum this may have little effect. The fact that in late December the breadth oscillator and the McClellan oscillator did reach levels that could be viewed as minor thrust readings may be construed as strong momentum readings. However, at this point we have to respect the negative indications short-term especially when we also have a negative short-term sentiment backdrop to go along with the weak momentum picture. I moved to bearish from neutral on the short-term yesterday and while we may have a bit more to go before the top is in from the looks of the indicators along with the wave structure it still looks like the place to be and for now I will remain negative. However, while we do have a bit more room a strong showing today could in fact reverse that signal so stay tuned. My biggest concern on the medium-term is the sentiment picture, which is not nearly consistent with important lows and sustainable advances. While I do believe that we are getting closer to a good medium-term bottom I am still of the opinion that a sustainable advance is not likely with the sentiment measures in their current position and I remain neutral on the medium-term. Long-term I remain bearish. The bonds have rallied further than I had expected but so far the indicators remain negative and the sell signal from last week remains in place. I remain bearish on both the short and medium-term. The short-term picture on the XAU is not clear. The correction may be counted as complete but until the XAU moves through resistance in the 51 area we have to allow for further weakness. I remain neutral on the short-term while still very bullish on the medium and long-term.

We sold short an additional 50% position in the QQQ’s at 65 ¾ for an average price of 65 5/8. They closed at 66 .56. Keep your stop at 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.