DAILY TECHNICAL MARKET COMMENT

By: Larry Katz

February 1, 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	01/31/2001	01/30/2001	01/29/2001	01/26/2001	01/25/2001
Breadth oscillator	+361	+348	+339	+266	+308
Volume oscillator	+142.3	+154.6	+147	+114	+168
A/D ratio	1.33	1.32	1.32	1.26	1.29
Three day oscillator	+467	+545	+471	+155	+344
McClellan oscillator	+71	+74	+63	+41	+62
Open 10 day Arms	1.00	.97	.98	1.00	.94
10 Day Arms	1.01	.97	.98	1.00	.94
CBOE P/C ratio	.61	.64	.48	.59	.63
OEX P/C ratio	1.40	2.31	.67	1.45	1.12
New highs	256*	113	106	78	71
New lows	3*	4	5	8	3

*These are preliminary numbers and will be adjusted tomorrow

The DJIA gained 6 points while the S&P lost nearly 8 points. Volume on the NYSE was 1.13 billion shares, about in line with Tuesday. The A/D line added about 400 units. The new highs expanded while the new lows remain a non-event. The Russell 2000 lost 3.32 points as it traced out a reversal day and closed near the lows. The short-term is neutral but weak. The medium-term is slightly positive. The Value-line lost 2.59 points. It too traced out a reversal pattern and closed on its low. The NASDAQ Composite lost 65 points and the NASDAQ 100 lost 93 points. They also closed near the low of the day. The short-term is now negative. The medium-term is neutral but improving and in the process of completing a bottom. The DJTA gained 49 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 turning back from important resistance. The medium and long-term remain negative.

The rally from January 26 on the daily chart may be counted as a fifth wave from January 8. However, the hourly chart of the S&P is difficult to count as anything but corrective. This rally may still unfold as a five since the daily chart is still positive. However, a break below yesterday’s low would confirm the rally as complete. Other than the slight possibility that this rally is in fact a fifth wave where it would then fit within the post January 8 and December 21 advance is difficult to say. For now it is best to take a wait and see approach and see what today brings us. The DJIA hourly chart from January 29 can be counted as a five-wave pattern at yesterday’s peak. The daily chart from January 26 remains positive and on the hourly chart shows a seven-wave or corrective pattern. This allows for the possibility of one more push above yesterday’s high to complete a five from January 26. This five, if indeed we get one would best be counted as a “c” wave from January 8 or 12. A move above the January 4 peak just above 11,000 would invalidate this count and allow for a more bullish pattern. A move today below Wednesday’s low would confirm that the rally from January 26 was complete on the daily chart. The NASDAQ 100 moved slightly above Tuesday’s. It did stop right near a .618 retracement of the decline from January 24 to January 26 and the reversal took the NDX right to a .618 retracement of the rally. The January 24 to January 26 decline can be counted as a five on the hourly chart. The rally from January 26 to yesterday may also be counted as a five. One of those is wrong and we should find out today. If it is positive we need to rally immediately as a break below Wednesday’s low would break important support. Given the technical picture I am favoring a bearish resolution and a break back below last weeks low. A move above Wednesday’s high would be a positive. Support: S&P; 1355-1356, 1340-1342, DJIA; 10,810-10,822, 10,740-10,755, NDX; 2590-2595, 2500-2520, 2460-2475. Resistance: S&P; 1373-1374, 1382, 1395-1400, DJIA; 10,920-10,927, 11,000-11,050, NDX; 2665-2672, 2710-2717, 2785-2796.

The DJIA managed to close higher but was the only average to do so. More importantly the averages including the DJIA closed well off their best levels of the day and in fact much closer to their session lows. In the case of the NASDAQ averages they closed on their lows leaving a minor reversal pattern on the charts. We also saw a shift in the way the market had been behaving of late breaking a string of strong closes. Volume was about flat with Tuesday. This does detract a bit from the negative pattern but also shows that there was very little conviction behind the rally early in the day. Breadth was positive but also weakened as the day wore on. The expansion in new highs was a plus but they are still diverging from their late December-early January peak.

The CBOE put to call ratio eased a bit from Tuesday and was slightly negative. The OEX ratio was positive but did ease a lot from Tuesday. The Rydex ratios are extremely negative hitting levels not seen since early November. The breadth oscillator is overbought and diverging. The volume oscillator is in a similar position and both are negative. The 3-day oscillator moved lower

And is on a confirmed sell signal. The McClellan oscillator moved lower and had a very minor net change. It is neutral and diverging and the small net change implies the strong likelihood of a big move over the short-term. The 10-day and open 10-day Arms are neutral but closer to oversold. The 5-day Arms is neutral and the 21-day Arms is oversold and positive. The daily range oscillators are neutral but also turned down from near a very critical level. Further weakness could turn them negative. The daily trend oscillators are now neutral on the S&P and slightly positive on the DJIA.

The market got what it was looking for from the FED and in typical fashion sold off. This happens in most cases anyway as it is usually a case of but the rumor sell the news. However, it also occurred in the midst of a short-term sell signal that was further confirmed by yesterday’s action. Short-term momentum is overbought and diverging. This includes the breadth and volume oscillators as well as the McClellan oscillator. The 3-day oscillator is on a confirmed sell signal as well. Price behavior yesterday was quite poor with most of the averages tracing out negative reversal patterns. They were not strong reversal patterns as volume did not expand much but they were nonetheless reversal patterns. The most negative aspect of the market, however, remains the sentiment indicators. The CBOE put to call ratio has not been excessive but is still negative and basis the 10-day moving average it is as bad or worse as it was in early November. This is also the case with the Rydex ratios. In addition, Investors Intelligence reported 61% bulls. This is the highest number of bulls since June of 1999 and the second highest total since 1987. It could get worse but frankly the sentiment picture is a very negative situation. The DJIA may have one more minor new high in it but it looks as though the short-term decline I have been expecting is underway in most if not all of the averages and lower prices are expected. I remain bearish on the short-term. Medium-term I am still of the view that this coming decline is part of a bottoming process but one that is not yet complete. I am seeing a lot of improvement but remain neutral fro now. Long-term I remain bearish. The bonds had a good day and are close to important resistance. The short-term remains neutral. I am going to move from bearish to neutral on the medium-term. The XAU is still not conclusive short-term so neutral is a good place to be. Medium and long-term I am bullish and expect to see substantially higher prices.

We are holding a short position in the QQQ’s from 65 5/8. They closed at54.30. Lower the stop to 68.40. 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.