DAILY TECHNICAL MARKET COMMENT

By: Larry Katz

January 30, 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	01/29/2001	01/26/2001	01/25/2001	01/24/2001	01/23/2001
Breadth oscillator	+339	+266	+308	+352	+384
Volume oscillator	+147	+114	+168	+194	+180
A/D ratio	1.32	1.26	1.29	1.34	1.36
Three day oscillator	+471	+155	+344	+331	+638
McClellan oscillator	+63	+41	+62	+64	+85
Open 10 day Arms	.98	1.00	.94	.93	.97
10 Day Arms	.98	1.00	.94	.93	.97
CBOE P/C ratio	.48	.59	.63	.53	.60
OEX P/C ratio	.67	1.45	1.12	1.62	1.18
New highs	199*	78	71	76	86
New lows	8*	8	3	4	4

*These are preliminary numbers and will be adjusted tomorrow

The DJIA gained 42 points and the S&P was higher by 9 points. Volume was weak at just over one-billion shares. The A/D line added about 800 units. The new highs expanded and the new lows were flat. The Russell 2000 gained 9.23 points. The short-term is neutral. The medium-term is slightly positive. The Value-line gained 17.47 points. The short-term is neutral. The medium term is slightly positive. The NASDAQ Composite gained 56 points and the NASDAQ 100 gained 62 points. The short-term is neutral but weak. The medium-term is neutral but clearly improving. The DJTA gained 45 points. The short-term is neutral. The medium-term is positive but easing. The DJUA and UTY closed higher but well off their session peaks and in fact closer to their lows. They remain neutral short-term and both are approaching some strong resistance. The medium-term is negative as is the long-term.

The rally on the S&P from January 8 is best counted as a corrective pattern on both the daily and hourly chart. I am still of the notion that this rally is part of a larger pattern from December 21 but not yet sure whether it is complete. While the pattern from January 8 is best counted as corrective at least so far, it is possible at least on the daily chart that the rally decline into Friday’s low was a small fourth wave from that low and the current rally wave 5 of a larger “c” wave. While this is not the cleanest of patterns it is a possibility and that would allow for the post January 8 rally to be counted as a “c” wave from December 21. This would also allow for a modest new high above last weeks late peak. The DJIA has done very little over the past week. The decline from January 4 to January 8 can be counted very easily as a five-wave pattern on the hourly chart. Although the DJIA did moved below the January 8 low on January 10 I am counting that decline as part of an irregular pattern from January 8 and not the orthodox low of the post January 4 decline. The rally from that low has unfolded as a clear corrective pattern. And has yet to move towards the .618 retracement level of that decline and that allows for one more push higher. The NDX rally from January 8 to last week’s peak can be counted as a completed five-wave pattern on the daily and hourly chart with wave 5 unfolding as a diagonal triangle. I had thought it possible that last weeks late decline may have been a fourth wave from January 3 but it did in fact move below the peak of what may have been wave 1 of the pattern and that is not acceptable under the wave principle. Moreover, the rally from January 3 to January 4 was a three-wave pattern on the hourly chart, and that makes it impossible to count that rally as the first wave of a larger pattern. Meanwhile, the decline from late last week can be counted as a five-wave structure on the hourly chart and so far the rally from Friday is a three. This leaves open the possibility that the rally is a “b” or second wave from last week. There is a bit more room on this rally but if that is the correct count the NDX should begin to head lower soon. Support: S&P; 1350-1351, 1338-1340, 1312-1315, DJIA; 10480-10,500, 10,180-10,200, NDX; 2620-2626, 2500-2510, 2355-2365. Resistance: S&P; 1369-1371, 1376-1378, DJIA; 10,810-10,827, 11,000-11,025, NDX; 2710-2717, 2785-2796.

The averages traced out a positive price pattern as they reversed early weakness and closed close to the session highs. This is in most cases a positive pattern and a sign of strength and the fact that breadth was also positive doesn’t hurt the case much either. However, volume contracted substantially and that does take away a lot from the positive price action as it shows a lack of commitment on behalf of investors. The new highs expanded which is a plus of sorts. However, they are still well below their early January and late December levels. The new lows remain very subdued and are of little consequence at this time.

The CBOE put to call ratio moved down sharply and was at very bearish levels. The OEX ratio also moved down sharply and after improving a bit last week was back to extremely negative levels. The Rydex ratios are at or near where they were in early November while the asset levels of both Ursa and Arktos (the bear funds) are near historic lows. In a word they are negative. The breadth oscillator is overbought and diverging. The volume oscillator is also overbought and diverging. The 3-day oscillator is on a sell alert. The McClellan oscillator is neutral and also diverging. The 10-day and open 10-day Arms are neutral. The 5-day Arms is slightly negative and the 21-day Arms is oversold and positive. The daily range oscillators are neutral. The daily trend oscillators are positive but weakening on the S&P and neutral on the DJIA.

Short-term momentum is overbought and diverging. This is classic negative technical behavior and is a big negative for the short-term. So far the market has held up quite well in the face of all the negative technical indications and that has to be respected. Breadth in particular has been exceptionally good, not great but steady and in fact stronger than the averages. This is one of my favorite measures of the markets true health and the strong performance from breadth is a clear plus. Another favorite of mine in regards to the internal health of the market is the high/low statistics. From this arena we do have some minor problems as the new highs peaked nearly 4 weeks ago and have been diverging ever since. The market could overcome a negative from the new highs especially when the breadth figures are doing so well. The failure by the market to give much back in spite of the negative momentum picture is also worth noting. This has me very alert to the possibility that the sell signal may fail. This in fact does happen from time to time in periods of strong medium-term momentum and some indicators do support that possibility. However, the sentiment backdrop is particularly negative. The 10-day moving average of the CBOE put to call ratio for example is below where it stood on November 6 and not too far from where it was in early September. The Rydex ratio’s are also not far from where they were in November. In addition, the Volatility Index (VIX) has fallen sharply and is close to levels that have, in the past, marked short-term peaks. While it could get worse before the market does react the negative sentiment picture is a big overhang and combined with a weak short-term momentum backdrop adds a lot of weight to the idea that a decline is close at hand. The market nay hold up a bit longer as it awaits the announcement from the FED on Wednesday but from the looks of things the market is on the edge of a fairly strong decline and I remain bearish on the short-term. Medium-term nothing has changed. I am neutral but with the idea that the market is in the process of completing a medium-term bottom. Long-term I am bearish. The bonds remain negative on both a short- and medium-term basis. The switch back to bullish short-term on the XAU last week was premature as the rally turned out to be part of the corrective pattern from mid December rather than the next wave to the upside. I moved back to neutral short-term on Friday’s hotline and for now that is where I remain. Medium and long-term I remain bullish.

We are holding a short position in the QQQ’s from 65 5/8. They closed at 67. Keep the stop at 70 ¼. Make sure to call the early morning hotline for any 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.