DAILY TECHNICAL MARKET COMMENT

By: Larry Katz

January 31, 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	01/30/2001	01/29/2001	01/26/2001	01/25/2001	01/24/2001
Breadth oscillator	+348	+339	+266	+308	+352
Volume oscillator	+154.6	+147	+114	+168	+194
A/D ratio	1.32	1.32	1.26	1.29	1.34
Three day oscillator	+545	+471	+155	+344	+331
McClellan oscillator	+74	+63	+41	+62	+64
Open 10 day Arms	.97	.98	1.00	.94	.93
10 Day Arms	.97	.98	1.00	.94	.93
CBOE P/C ratio	.64	.48	.59	.63	.53
OEX P/C ratio	2.31	.67	1.45	1.12	1.62
New highs	201*	106	78	71	76
New lows	4*	5	8	3	4

*These are preliminary numbers and will be adjusted tomorrow

The DJIA gained 179 points and the S&P added 9 points. Volume on the NYSE totaled a mild 1.13 billion shares. The A/D line added about 600 units. The new highs were about flat with Monday and the new lows eased a bit. The Russell gained 3.75 points. The short-term is neutral. The medium-term is slightly positive. The Value-line gained 8.04 points and closed on its high for the day. The short-term is neutral. The medium term is slightly positive. The NASDAQ Composite was flat and the NASDAQ 100 lost 8 points. The short-term is neutral but weakening. The medium-term is neutral but improving and in the process of completing a bottom. The DJTA gained 57 points. The short-term is neutral. The medium-term is positive but easing. The DJUA and UTY closed lower. The short-term is neutral but near important resistance. The medium-term is negative as is the long-term.

The S&P moved above last weeks high but so far the hourly chart from last Friday’s low is not impulsive. It may still evolve as a five and that keeps open the possibility that the rally is still a fifth wave from January 8 but if that is to be then we need to see the rally continue a bit more today. The S&P did move above slightly above the .618 retracement of the decline from the November 6 peak making it more likely that the rally from December 21 is correcting the entire post September 1 decline. At this point I am viewing the rally from December 21 as the first wave of a larger pattern but one that is likely closer to complete. The DJIA moved not only to but well enough through the .618 retracement of the early January decline question the idea that the rally is a second or b” wave of that decline. It has not eliminated it but it certainly does question that count. Whether measured from January 8 or 10, the rally is clearly corrective and can still be counted in any number of ways. I am also still seeing the possibility that a triangle going back to October is in play but where we are within the pattern remains a mystery. There is a ton of resistance just above the 11,000 and a lot of support just below 10,500. Until the DJIA breaks decisively above or below those respective levels the best course of action is to stand aside in regards to the wave structure. The NASDAQ 100 stayed in a very narrow range yesterday keeping open the possibility that the rally from Friday was (is) a second or “b” wave from last weeks low. Meanwhile the hourly chart shows a three-wave pattern followed by several hours of sideways action. A move above Monday’s high could turn that three into a five so what we see early today will be important. Support: S&P 1362-1363, 1354-1356, 1338-1341, DJIA; 10,780-10,790, 10,710-10,725, NDX; 2640-2646, 2590-2600, 2510-2525. Resistance: S&P; 1378-1380, 1395-1400, DJIA, 11,000-11,050, 11400-11,450, NDX; 2710-2717, 2785-2796.

The DJIA stole the spotlight yesterday far out pacing the gains in the NYSE Composite and the S&P. However, all three did close near the high of the day and were relatively strong late in the session after a weak and sloppy opening. And strong closes are usually a plus for the market.. Volume though was weak and that again takes away from the positive price performance. Breadth on the other hand was decent, not as good as Monday but decent nonetheless. The new highs were about flat with Monday. They were good but are still diverging rather sharply from their late December-early January peaks.

The CBOE put to call ratio moved up a bit. It was still negative but not excessively so. The OEX ratio was also higher and in fact positive. The Rydex ratio on Monday moved to its worst reading since early November. The asset level in Ursa fell to new lows and the Arktos totals are not far behind. The breadth oscillator is overbought and diverging as is the volume oscillator. The 3-day oscillator is also overbought and diverging but a strong ay today could push it once again above the important +600 level. 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 while the 21-day Arms remains oversold and positive. The range oscillators are neutral but very close to turning positive. The daily trend oscillators are slightly positive but beginning to slip on the S&P.

Today is the day that the market has been focusing on since early January, the FED meeting. The market is expecting to see a rate cut the big debate has been how much of a cut it will see. There is talk of as much as 75 basis points. There sure is a lot of high hopes out there. From purely a price perspective the market has been behaving quite well. The past couple of days have seen early weakness followed by late strength and that tends to be positive. Technically, however, the action is at best mixed. Breadth ahs remained positive but volume has been very weak. Contracting volume as prices move sideways is a plus and consistent with consolidations. However, contracting and weak volume as prices rally is not usually good as it reflects a lack of commitment. A number of key indicators are overbought and diverging. Although improving a bit yesterday the short-term sentiment backdrop is clearly negative. The CBOE put to call ratio basis the 10-day moving average is below where it stood in early November while the Rydex ratios are close. We have to allow for some further gains on a very near-term basis but the weight of the evidence continues to support the idea that a decline and correction of the latest advance is close at hand. The sell signal short-term remains in place and I remain bearish on the short-term. Medium-term I am neutral but would view any near-term weakness as part of a medium-term bottoming process. Long-term I remain bearish. The bonds rallied sharply today. They have not broken any key resistance levels but the short-term has improved enough to move to neutral from bearish. Medium-term I remain mildly bearish. The XAU had a decent day but it was not enough to turn the short-term around and I remain neutral. Medium and long-term I remain bullish with the idea that a rally back above the December 15 peak is expected once the correction runs its course.

We are holding a short position in the QQQ’s from 65 5/8. They closed at 66.75. 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.