DAILY TECHNICAL MARKET COMMENT

 

By: Larry Katz

January 23, 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

01/22/01

01/19/01

01/18/01

01/17/01

01/16/01

Breadth oscillator

+302

+221

+278

+396

+333

Volume oscillator

+128.9

+60.1

+71.1

+125.8

+61.4

A/D ratio

1.26

1.20

1.24

1.41

1.37

Three day oscillator

+184

-2

+333

+327

+398

McClellan oscillator

+47

+44

+82

+86

+95

Open 10 day Arms

1.00

1.06

1.09

1.09

1.14

10 Day Arms

1.01

1.08

1.10

1.13

1.28

CBOE P/C ratio

.46

.48

.59

.49

.56

OEX P/C ratio

.99

1.30

1.17

.92

1.13

New highs

92*

37

63

101

98

New lows

6*

8

6

7

11

*These are preliminary numbers and will be adjusted tomorrow

 

The DJIA lost 9 points and the S&P gained less than 1 point. Volume came in at a low 1.13 billion shares. The A/D line added about 400 units. The new highs and the new lows contracted. The Russell 2000 gained 2.06 points. The short-term is neutral but could rally a bit more. The medium-term is neutral but improving. The Value-line gained 5.08 points. I am neutral on both the short and medium-term. The NASDAQ Composite lost 12 points and the NASDAQ 100 lost 12 points as well. Both closed off their lows and about at the mid point of the days range. I am neutral short-term and looking for a modest decline. The medium-term is neutral but clearly improving. The DJTA gained 16 points. The short-term is neutral but weak. The medium-term is neutral. The DJUA and UTY closed higher. I am neutral short-term but they are still oversold and should rally further. I am bearish medium and long-term.

 

The S&P moved below Friday’s low locking in the rally from January 16 as a completed wave on the daily chart and as a three-wave pattern on the hourly chart. The rally from January 16 is either all of a second three from January 8, the “a” wave of a second three from January 8 or wave “c” of a diagonal triangle from January 8. Under the latter two count the S&P should see one more move above last Friday’s high near 1354, a level that is providing some modest resistance. A break below yesterday’s low would likely invalidate the diagonal triangle count as the decline from last Friday would then break below the 50% retracement of the rally from January 16 and that is about as far as a fourth wave should retrace. A break below 1328 would likely confirm that the post January 8 rally was behind us. The hourly chart of the DJIA shows on the surface anyway a corrective pattern into yesterday’s low from last Thursday’s peak. However, it is possible to count the pattern as a five if wave 4 was an irregular. Conversely, it is possible that a five-wave pattern completed earlier yesterday with the late drop either the first wave of wave 3 or “c” or wave “b” of an irregular. The daily chart remains down so there is really nothing conclusive. The DJIA has continued to find support right near the 10,500 area which is becoming very important. A confirmed break of that level would be a clear negative and set up for a test or break of the January low. The NADSAQ 100 still shows a seven-wave pattern from January 8 on the daily and hourly charts. The rally from January 16 is a three-wave pattern with the hourly chart showing corrective waves as well. I had been looking at the possibility that the post January 16 advance was a fifth wave diagonal triangle from January 8. That would allow for a modest new high above Friday’s peak but if that is correct we need to hold above yesterday’s low as that would break the 50% retracement of the third or “c” wave. In essence the NDX is in a very similar position Elliott wise as the S&P. Support: S&P; 1328-1330, 1315-1316, 1305-1308, DJIA; 10,480-10,500, 10,180-10,200, NDX; 2585-2593, 2516-2522, 2379-2388. Resistance: S&P 1346-1348, 1354-1355, 1359-1360, DJIA; 10,650-10,660, 10810-10,822, NDX; 2686-2691, 2785-2795.

 

The market was able to withstand some bad news and a couple of modest selling attempts to close near flat on the day. The averages closed about mid range and we did see a modest bounce into the close. Volume eased from Friday and was neutral. Breadth though closed modestly positive in spite of weakness in the averages. The new highs again eased and are beginning to weaken. However the new lows were near extinct on the day and this is a plus. This is a mixed signal with the failure by the new highs a negative while the lack of new lows is a definite plus.

 

The CBOE put to call ratio was extremely low and very negative. The OEX ratio eased a bit from Friday and was slightly negative but not close to the excessive levels that we have seen over the past several weeks. The breadth oscillator moved higher and is back to a weak overbought reading. The volume oscillator also moved higher and is fully overbought. The 3-day oscillator is neutral but weak. The McClellan oscillator moved up but had a very minor change of 3 points. It is neutral but weak while the minor daily change suggests that the market should have a fairly big move on a near-term basis. The 10-day and open 10-day Arms moved down sharply and are back to neutral. The 5-day Arms is close to overbought while 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 market in the face of a slew of negative short-term indicators has been holding up quite well. In periods of strong medium-term momentum this does happen quite a lot and is a sign of underlying strength. It is my view that the averages are indeed in the process of completing a good medium-term bottom that will set the stage for a sustainable advance. Some of the medium-term momentum measures have improved and as discussed from time to time the breadth oscillator and the McClellan oscillator did reach levels in late December consistent with an initiation thrust. In addition, the Arms indexes hit some of their most bullish readings in years. These have to be respected and believe me they are in the forefront of my mind. Even so, we do have a short-term sell signal in place with a lot of short-term divergences from a number of indicators. Moreover, short-term sentiment indicators have deteriorated and quite rapidly. Both the CBOE put to call ratio and the Rydex statistics, especially the assets in the bear funds are at negative levels. This has been a rally killer in the past and is a big problem now. The market may hold up a it longer and a modest move above last weeks peak is possible as the top is played out but given both the sentiment backdrop and the position of the indicators I am going to remain bearish for the short-term. Medium-term I am neutral but with the idea that we are in the process of completing a bottom. Long-term I am bearish. The bonds broke hard yesterday and violated support a move towards last weeks low is expected. How we handle that will be important but fro now the short and medium-term sell signals remain in place. The XAU had a very impressive session gaining more than % and breaking strongly above resistance. While it is possible that the rally is a b” wave of a flat which would allow for a move back below the recent low it is more likely that wave “c” or 3 from October is underway. I am moving back to bullish on the short-term and remain bullish on the medium and long-term.

 

We are holding a short position in the QQQ’s from 65 5/8. They closed at 66 3/8. Keep the stop at 70 ¼. Lower the stop to 68 5/8 on any move below 64 ¼. Cover ½ of the position at 60 ¾ and if hit lower the stop on the remaining ½ to break even. Cover the remaining ½ position at 57 7/8.

 

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.

 

 

Please note. I will be traveling the balance of the week. The next letter will be for Tuesday January 30. There will be no intra day hotline today Tuesday January 23. I will do a brief hotline Tuesday night and will on that update announce the schedule.

 

Thank you.