DAILY TECHNICAL MARKET COMMENT

By: Larry Katz

February 9, 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	02/08/2001	02/07/2001	2/06/2001	02/05/2001	02/02/2001
Breadth oscillator	+218	+275	+262	+344	+364
Volume oscillator	+21.7	+49.7	+80.2	+128	+131.6
A/D ratio	1.18	1.22	1.21	1.32	1.34
Three day oscillator	-21	+172	+185	+104	+40
McClellan oscillator	-18	+11	+18	+20	+28
Open 10 day Arms	1.10	1.09	1.01	.99	1.00
10 Day Arms	1.13	1.12	1.04	1.02	1.03
CBOE P/C ratio	.71	.58	.71	.54	.60
OEX P/C ratio	.97	.79	1.47	1.50	.97
New highs	155*	119	110	106	112
New lows	15*	12	6	9	3

*These are preliminary numbers and will be adjusted tomorrow

The DJIA lost 66 points and the S&P lost a little over 8 points. Volume on the NYSE was 1.09 billion shares, and that as down a bit from Wednesday. The A/D line lost 200 units. The new highs eased a little and the new lows were about flat. The Russell 2000 lost 4 points. The short-term is negative. The medium-term is slightly positive. The Value line lost 7.07 points and closed near the low of the day. I am bearish short-term. The medium term is slightly positive. The NASDAQ composite lost 46 points and the NASDAQ 100 lost 54 points. Both traced out negative reversal patterns and closed near the session low. They are negative both short and medium-term. The DJTA lost 9 points. The short-term is negative. The medium-term is positive but close to neutral. The DJUA and UTY rallied strongly. The short-term is neutral. The medium and long-term is negative.

The S&P moved below yesterday’s low after an early morning rally carried the average back into the area of a .618 retracement of the decline from Tuesday to Wednesday. There are two possibilities regarding the short-term wave count on the S&P. The first is that the S&P is about to enter a third of a third from January 31.The latter is that the entire post January 31 decline is a double three with yesterday’s decline wave “c” of the second three. If we are about to enter a third of a third we will know very soon. If the double three is correct we should be close to a decent rally. In either case the pattern does not look complete as the decline from Thursday shows so far only three waves down on the hourly chart. The DJIA moved below Wednesday’ low confirming the rally from February 2 as a completed wave on the daily chart. The decline so far is corrective but as long as the daily chart remains down the pattern can extend. The daily chart shows a five-wave advance in place from January 22 but a seven-wave or corrective advance from the January 12 low. There is a possibility that the current decline is a fourth wave from January 12 so we need to watch the pattern closely. The NDX did not break below Wednesday’s low but was very close. I am counting the NDX in exactly the same way as the S&P. If we are about to enter a third of a third we will know real soon. Support S&P 1328-1330, 1316-1319, DJIA; 10,837-10,845, 10,710-10,722, NDX; 2330-2440, 2250-2260. Resistance: S&P; 1343-1345, 1354-1356, DJIA; 10,930-10,938, 10,975-10,985, NDX; 2460-2467, 2506-2515.

The averages closed poorly and very close to their lows after rallying near the open tracing out the third reversal day this week. The DJIA and the S&P moved below Wednesday’s low but the NASDAQ averages held by a very small margin. Volume was again light and about in line with what we have seen all week. The A/D line was negative but only slightly so and continues to perform far better than the averages. The new highs eased a bit. They are still OK short-term but continue to diverge from their levels seen in early January. The new lows were about in line with Wednesday. That was up a bit from the most recent levels but overall it is still a rather benign number and not a real problem.

The CBOE put to call ratio moved higher yesterday. This is a small plus but the 10-day moving average remains negative. The OEX ratio also moved up but was still below 1.00 and negative. The Rydex ratios improved a bit. They are no longer bearish but they are still not close to levels that would indicate a good low was in place. The breadth and volume oscillators moved lower. They are at neutral levels but still on a short-term sell signal. The 3-day oscillator moved lower. It is not yet close to oversold and remains on its sell signal. The McClellan oscillator moved lower and it is below zero for the first time since late November. It is not close to oversold and while improving it remains on a sell signal. The 10-day and open 10-day Arms moved higher. They are oversold and positive The 5-day Arms is neutral but getting closer to oversold while the 21-day Arms is neutral. The daily range oscillators are neutral on the DJIA and weak on the S&P. The daily trend oscillators are positive on the DJIA and negative on the S&P and the NDX.

Yesterday was the third day this week that had a reversal pattern. The market did follow-through a bit to Wednesday’s late rally. The weak close yesterday allows for some follow-through weakness early today. The wave structure shows one of two possibilities regarding yesterday’s action. One allows for the decline to being to accelerate and the other, while supporting some further weakness does support the idea that a rally of some sort is not far off. The technical condition of the market is showing some improvement. The breadth and volume oscillators have moved to neutral and that could allow for a bounce. In addition, the 10-day and open 10-day Arms are back to oversold levels. However, the McClellan oscillator has just moved below aero and in most cases this would be conformation that the decline is still early. In addition, the trend oscillators on both the S&P and NASDAQ are negative and on fairly fresh sell signals. There has also been some improvement in the short-term sentiment indicators. Yesterday’s increase in the CBOE put to all ratio although not exceptional was a move in the right direction and the Rydex ratios have eased from their very negative levels of last week. They are in a position to allow for a bounce soon but are not anywhere near levels that would support the idea that a low of any importance was in place. Moreover, given their history of late a rally over the next few days would no doubt serve to turn them negative again. Meanwhile, the American Association of Individual Investors (AAII) reported 56% bull versus only 14% bears. This is the worst bull/bear ratio since early November. In addition, Consensus Inc reported 58% bulls, its most negative one week reading since late August. The 4-week moving average is not as bad as it as in august but is not far away either. There are two possibilities for the market. The first is that the decline begins to pick up steam and an acceleration to the downside gets underway now. This would in all likelihood move the indicators or a good deal of them to levels hat could in fact support a good rally. The other possibility is that the market is close to a very minor price low that would allow for a decent bounce to correct the recent decline. The indicators do allow for it but they are not close to levels that would support a good rally but only a bounce and once complete another leg or wave to the downside would be expected. In either case the decline is not over. I am bearish short-term on the DJIA, S&P and NDX. Medium-term I am bearish on the S&P and NDX and neutral on the DJIA. Long-term I remain bearish. The bonds traced out a reversal and closed decently. They could rally more on further equity weakness but the best I see is a trading range. I remain neutral on the short and medium-term. The XAU showed no follow-through to Wednesday’s supposed reversal and closed near the session low. It moved below Wednesday’s low and is very close to important support around 46. Obviously, my move back to bullish yesterday for the short-term was not correct. The XAU is either completing its post December 21 correction now or my analysis is wrong. A break of support could turn the picture negative. I am going to stay bullish in all time frames but that could change today.

We are holding a ½ short position in the QQQ’s from 65 5/8 having covered ½ on Monday for a 5.02 point gain. They closed yesterday at 58.79.The stop was lowered to 61.60. Lower the stop to 60.10 on any move below 57.46. Make sure to call the early morning hotline at 7:45 AM pacific 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.