*These are preliminary numbers and will be adjusted tomorrow

The DJIA lost 99 points and the S&P lost close to 18 points. Volume was about where it has been all week a tad over one-billion shares. The A/D line lost about 350 units. The new highs and the new lows were about flat with Thursday. The Russell 2000 lost 5.84 points. The short-term is negative. The medium-term is slightly positive. The Value-line lost 10.69 points. The short-term is negative. The medium-term is slightly positive. The NADSDAQ Composite lost 91 points and the NASDAQ 100 lost 94 points and both closed near the low of the day. The short-term is negative but a bounce is possible. The medium-term is negative but looks to be in the process of completing a bottom. The DJTA lost about 10 points. The short-term is negative. The medium-term is positive but very close to turning neutral. The DJUA and UTY closed higher. The short-term is neutral and right at important resistance. The medium-term and long-term remain negative. 

The hourly chart of the S&P from Thursday’s high does show a completed five-wave pattern at Friday’s low. It is possible to now count the entire pattern from January 31 as a completed double three. However, the S&P also broke below important support levels on Friday in the 1316-1319 zone. That represented the .618 retracement of the rally from January 8 and the 50% retracement of the rally from December 21. In addition, that was also the area in which the February 6 decline was equal in length to the first three and also where the decline from Thursday’s peak was equal to the February 6-7 decline. While it is indeed possible to count the pattern from January 31 as complete, internal Fibonacci price relationships suggest there may be more to go. The other count, as discussed the past two days is that the S&P is in a third of a third from January 24. The nature of any rally from these levels will tell us a lot. A break below Friday’s low would likely confirm that the decline was extending and add a lot of weight to the idea that the third of a third is the correct count. The DJIA hourly chart from last weeks high remains corrective but is beginning to take on impulsive characteristics. As long as the daily chart remains down a five may still unfold. The DJIA stopped Friday right at a 50% retracement of the rally from January 22.  If this is a fourth wave from January 12 then we need to hold right at these levels. If not we are faced with a seven wave pattern from January 12. The NDX like the S&P shows a clean five- wave decline on the hourly chart from Thursday’s high into Friday’s low. This five is either wave “c” of a double three from January 24 or part of a third of a third from that same high. The second three has moved past a .618 relationship with the first three and is not close to being equal. Since a second three should bear a Fibonacci relationship with the first three in a sequence it is likely that if this is the correct count it is not complete. So in either case I expect to see lower prices and the nature of any rally from these levels will tell us whether it is an impulsive move or a corrective one to the downside. Support: S&P 1300-1303, 1290-1294, DJIA, 10,710-10,722, 10,580-10,600, NDX; 2200-2210, 2150-2160. Resistance: S&P, 1325-1326, 1335-1337, 1346-1349, DJIA, 10,860-10,868, 10,930-10,940, NDX; 2330-2336, 2380-2388, 2422-2433.

The market was under pressure most of the session Friday with the averages selling off late in the day and closing near the lows. Volume was about in line with what we have seen for most of the past two weeks. The low volume as the market has moved lower is not bullish. Remember, stocks need volume to go higher but can fall from their own weight. Breadth was negative but only modestly so and continues to perform far better than the averages. The new highs were about in line with Thursday’s total. They are OK very short-term but have been diverging from early January. The new lows were about flat with Thursday. They have expanded slightly the past couple of days. This has confirmed the lower prices but they are nowhere close to levels that would be a problem.

The CBOE put to call ratio moved higher on Friday. This is improving but the 10-day moving average is still negative and needs a lot more improvement. The OEX ratio also moved higher but was only neutral. The Rydex ratios have also improved. However, they are not close to levels seen at other good trading lows and still need work to get there. The breadth and volume oscillators moved lower and are neutral. They have improved but have not yet reversed the sell signal from late January. The 3-day oscillator moved lower but is still not close to oversold. It is still negative short-term but is improving. The McClellan oscillator moved lower and is below zero. It is still negative but is improving. The 10-day and open 10-day Arms moved higher and are positive. The 5-day Arms is slightly oversold and positive while the 21-day Arms is neutral. The daily range oscillators are neutral but weak on the S&P and NDX. The daily trend oscillators are negative on both the S&P and the NDX. They are positive on the DJIA but slipping fast.

We did get that follow-through selling following Thursday‘s weak close and reversal pattern with all of the averages moving to new reaction lows. The tape was weak throughout the day on Friday with feeble rally attempts that were aborted almost before they got underway. We have yet to see any sort of give up even short-term and that is reflected in the continued low volume as the market declines. This in a sense suggests that investors are not very negative and from a contrary view is a negative itself. The technical indicators have definitely improved. The momentum indictors have worked off their overbought condition and for the most part are neutral. The one exception is the Arms indexes, with the 10-day and open 10 back to oversold. In spite of the improvement, we have, other than the Arms of course, seen these indicators turn positive, even short-term. Moreover, the McClellan oscillator has just moved below zero for the first time in over two months, and that has turned the summation index lower. This in my view is only the beginning of a long overdue correction in this area. Short-term sentiment has also improved a bit They are OK and could support a bounce, but neither the 10-day moving average of the CBOE put to call ratio nor the Rydex ratios have moved to levels that are consistent with good trading lows. Moreover, the VIX (volatility Index) is also showing a high degree of complacency and has a long way to go before becoming even remotely positive. The wave structure, improvement in the momentum indicators and short-term sentiment has put the market in a position to rally over the very near-term. However, the indicators have not moved to levels that could support a sustainable advance but only a bounce. So while there has been some improvement I do not expect that we have seen the end of the decline from late January but only part of it. I remain bearish across the board on the short-term. Medium-term I am bearish still on the S&P and NDX and neutral on the DJIA. Long-term I remain bearish. The bonds rallied nicely on Friday moving towards the peak seen on January 31. I am still of the view that a big trading range is unfolding and while I see higher prices, I do not see the bonds moving above the early January peak and as such I remain neutral short and medium-term but with an upward bias. The XAU is close to very important support for the short-term. The pattern from the December peak does look corrective and that remains a plus for a bullish resolution. However, that support level near 46 really does need to hold. I am still of the view that the XAU has either completed or is close to completing a very major bottom. This weeks Commodities Corner in Barrons is a must read for any of you that have an interest in this area. This is the sort of thing seen near major bottoms and I urge you to get a copy and read it. The XAU is a bit dicey here but I am going to stay bullish in all time frames for a bit longer.

Friday we covered a 25% position in the short QQQ for a 9.02 point gain and we covered a 50% position on February 5 for a 5.02 point gain. We are holding a 25% position from 65.62. They closed Friday at 56.40. Keep your stop at 59.70 on the remaining 25% position. 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.

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