DAILY TECHNICAL MARKET COMMENT

By: Larry Katz

February 6, 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	Bear
Long Term	Bear	Bear

Indicator	02/05/2001	02/02/2001	02/01/2001	01/31/2001	01/30/2001
Breadth oscillator	+344	+364	+363	+361	+348
Volume oscillator	+128	+131.6	+133.3	+142.3	+154.6
A/D ratio	1.32	1.34	1.33	1.33	1.32
Three day oscillator	+104	+40	+412	+467	+545
McClellan oscillator	+20	+28	+67	+71	+74
Open 10 day Arms	.99	1.00	1.01	1.00	.97
10 Day Arms	1.02	1.03	1.01	1.01	.97
CBOE P/C ratio	.54	.60	.53	.61	.64
OEX P/C ratio	1.50	.97	1.17	1.40	2.31
New highs	168*	112	124	115	113
New lows	9*	3	3	2	4

*These are preliminary numbers and will be adjusted tomorrow

The DJIA gained 101 points while the S&P added under 5 points. Volume was about one billion shares contracting modestly from Friday. The A/D line added about 170 units. The new highs dropped off sharply and the new lows expanded but only slightly so. The Russell 2000 lost less than a point. The short-term is neutral but close to a sell. The medium-term is slightly positive. The Value-line gained 1.67 points. The short-term is negative. The medium-term is slightly positive. The NASDAQ Composite lost 17 points and the NASDAQ 100 lost 4 points. Both did close well off their lows but remain negative on the short-term. I am moving to bearish on the medium-term as well but with the idea that they are in the process of completing a bottom. The DJTA lost 23 points. I am neutral short-term and slightly positive on the medium-term. The DJUA and UTY closed higher. The short-term is neutral but close to important resistance. The medium and long-term remain negative.

The S&P daily chart shows three waves down from last weeks peak. The third wave of that pattern can be counted as a five on the hourly chart leaving open the possibility that a five may unfold. In order for this to happen, however, we would need to see the S&P move above yesterday’s high but also hold below the February 1 low of 1359 in order to avoid an overlap leaving very little room but enough for it to be possible. If we do move above that level we will likely be faced with a three, which would be viewed as the “a” wave of a larger pattern. For now we will see what today brings us. The DJIA hourly chart shows a three-wave rally from Friday’s low. I had thought that the rally from January 26 was wave “c” from January 12 and that remains my preferred count. However, the DJIA is very close to last weeks high and any early strength today could turn the hourly chart into a five. That leaves open the possibility that the rally from January 26 was a third wave not a “c” wave from January 12 or January 18 and a modest new high above last weeks high will be possible. The next day or two will be important. The NDX daily chart shows a three-wave pattern from January 24. The hourly chart from January 31 can be counted as a five but ideally one more lower low below yesterday’s low would give it a better look. The first wave down is also a five on the hourly chart and like the S&P the NDX is in a position to trace out a five on the daily chart, but just like the S&P there is little room on the upside before an overlap would invalidate the count. Support: S&P; 1340-1342, 1316-1319, DJIA; 10,890-10,900, 10,679-10,690, NDX; 2345-2355, 2320-2329, Resistance: S&P; 1357-1359, 1364-1365, 1370-1372, DJIA; 11,000-11,050, 11,100-11,125, NDX; 2520-2525, 2600-2608, 2633-2642.

The averages managed to reverse early losses and close higher and in fact most closed on or near their session peaks. They did trace out what could be viewed as a minor reversal pattern. However, volume was very light and even below Friday’s light volume, and that does take away a lot from the price pattern. Breadth was positive but weak and not up to recent standards. And the new highs contracted sharply. The new lows did expand but the absolute level is still quite low and of very little consequence at this time.

The CBOE put to call ratio moved lower and was quite negative. The OEX ratio moved higher and was bullish. The Rydex ratios are negative and have a long way to go before becoming positive. Short-term sentiment remains negative. The breadth and volume oscillator moved down a bit but are still overbought. They are also diverging and remain on a sell signal. The 3-day oscillator is not close to oversold and remains on its sell signal from last week. The McClellan oscillator moved lower and is also on a short-term sell signal. The 10-day and open 10-day Arms are neutral but the open 10 is still closer to oversold. The 5-day Arms is neutral and so to is the 21-day Arms. The daily range oscillators are neutral but weak on the S&P and OK on the DJIA. The daily trend oscillators are negative on the S&P and positive on the DJIA. They are also negative on the NDX.

The DJIA almost completely dominated the market yesterday gaining nearly three times as much as the S&P and twice as much as the NYSE Composite. It was the only average to come close to last weeks high and in fact it is very close and may in fact push into important resistance one more time. However, if it does, we could in act set off even more negative divergences. The intense rotation between the DJIA and the tech heavy NASDAQ remains in place. This in my view is a big negative as it reflects a huge amount of indecision on the part of investors as they just cannot seem to make up their mind where they want to be. Meanwhile, most of the momentum indicators remain in poor shape and on sell signals. The one still somewhat positive indicator is the Arms indexes but they are back to neutral and not nearly as favorable as they were early in January. However, both the breadth and volume oscillators remain overbought and continue to diverge while the McClellan oscillator is also failing miserably. The biggest problem though remains the sentiment indicators. Yesterday, in spite of the early slide in price, the CBOE put to call ratio moved lower and was quite negative. And this was also in spite of Friday’s sharp decline. The Rydex ratio has eased but only slightly so and is still close to levels seen at tops and nowhere near levels seen near lows. This indicator has a lot of work before coming close to even neutral. The complacency displayed by both of these indicators coupled with a very negative Investors Intelligence and American Association of Individual Investors (AAII) is frankly not very comprehendible an is hugely negative. Short-term I remain bearish on the S&P. The DJIA is a tough call and a modest new high is possible but there is enough to stay bearish here as well. Medium-term I remain bearish on the S&P and expect to see lower prices. I am going to move back to neutral on the DJIA. Long-term remain bearish. The bonds closed higher but off their peak. I am going to stay neutral short and medium-term. The XAU has resistance at 51.20 but is very close to triggering a short-term buy signal. A strong close today could do the trick but for now I will remain neutral. Medium and long-term I remain bullish.

We covered ½ of the short position in the QQQ’s at 60.60 for a gain of 5.02 points. Keep the stop on the remaining ½ position at 65.40 and 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.