*These are preliminary numbers and will be adjusted tomorrow

The DJIA lost 107 points and the S&P lost 3 points. Volume came in at 1.1 billion shares, about in line with what we have seen the past several days. The A/D line lost nearly 400 units. The new highs eased a little and the new lows expanded. The Russell 2000 gained .92 points and traced out a small positive reversal. I am moving to neutral from negative on the short-term. I am slightly positive medium-term. The Value-line gained 2.20 points. It close near its high and also traced out a small positive reversal. I am moving to neutral from bearish on the short-term. I am slightly positive on the medium-term. The NASDAQ Composite gained 63 points and the NASDAQ 100 added 97 points. They closed near the high of the day and traced out modest positive reversals. I am moving to neutral from bearish on both the short and medium-term. The DJTA closed down sharply and near its lows. I am bearish short-term. I am moving from bullish to neutral on the medium-term. The DJUA and UTY closed a bit lower. The short-term is neutral. The medium and long-term remain negative.

The S&P moved below the lows of last week but stopped at very important support just above the 1300 level. This area represents the .618 retracement of the rally from December 21 to January 31. In addition, this is also the area in which the decline from February 6 is 1.618 the decline from January 31 to February 5, and also where the decline from Tuesday is .618 the length of the February 6-February 9.  There are a number of possibilities in regards to the decline from Tuesday’s high. As long as that support level holds we can view it as a possible “c” wave from February 6 and as having completed double three from January 31. This also sets up the possibility of a fairly good rally getting underway now. Meanwhile, yesterday’s rally from just above support has not yet carried back to the .618 retracement of the decline from Tuesday and so we have no real conclusive evidence one way or the other. The DJIA failed to move above the February 6 high on Tuesday and sold off into the area of the February 9 low. We are still faced with a seven- wave pattern from January 12 into the February 6 peak. A move below last weeks low would turn the weekly chart down and confirm the corrective rally. As such, the only possibility that the pattern from February 6 is a fourth wave from January 12 is if it is a triangle. If that is the case then yesterday was most likely wave “c” of that triangle. As stated a move below last weeks low confirms the post January 12 advance as over. Yesterday we came close to that low so today and Friday will be important. The NDX like the S&P moved below the low of last week. I can make a case that yesterday’s decline completed the pattern from January 24 as a simple flat with the post February 6 decline a diagonal triangle “c’ wave. At yesterday’s low the post February 6 decline came within 5 points of perfect equality with the January 24 February 5 decline. There are of course any number of other possible counts but as long as those lows hold we have to respect this one. Any further strength today would move the NDX above the .618 retracement of the decline from Tuesday’s high and allow for more upside. A break of yesterday’s low could be very negative. Given the relationships discussed above we need to be aware of the possibility that a decent rally could be getting underway.  Support: S&P- 1310-1311, 1300-1303, DJIA; 10756, 10675-10,685, NDX; 2227-2232, 2150-2160. Resistance; S&P 1325-1326, 1339-1341, DJIA; 10,915-10,925, 11,000-11,050, NDX; 2300-2320, 2400-2425.

The DJIA closed down sharply and not far off the lows of the day. The NYSE Composite did likewise. The S&P was also lower but closed well off its low and closer to its high while the NASDAQ averages closed sharply higher and near the session peak. Volume remains weak and mostly neutral. The A/D lien yesterday was negative. It was not real negative and when compared with the NYSE Composite it was a little stronger but it did lose a bit of ground. The new highs on an absolute level are still OK but they did ease. More importantly though is the fact hat they have still not been able to come close to levels seen in late December early January. The new lows did expand yesterday. The absolute level is still not much of a problem but they did reach their highest one-day total since early January and did confirm price.

The CBOE put to call ratio was about flat with Thursday and was neutral. The OEX ratio moved higher and was also neutral. The Rydex ratios have improved and are in a position to support a rally but have not yet reached levels consistent with important trading lows. The breadth and volume oscillators moved lower and are neutral. The 3-day oscillator is neutral. The McClellan oscillator is moving lower but still far from oversold and beginning to act weak. The 10-day and open 10-day Arms are oversold and positive. The 5-day Arms is neutral. The 21-day Arms is neutral but close to oversold. The daily range oscillators are neutral but weak on the S&P and beginning to roll over on the DJIA. The daily trend oscillators are negative on the S&P and NDX and just turned down on the DJIA.

For the first time in a very long while the DJIA was down while the NASDAQ averages rallied and closed strongly. This was a big change from what we have seen over the past several weeks and just a break in the monotony is a welcome relief.  The wave structure on the S&P and NDX allow for a good ally to get underway now while the DJIA may have some further corrective or sideways action so this pattern may last for a few more days. The momentum indicators have improved a bit and could allow for a rally, especially the Arms indexes which are mostly positive. However, the McClellan oscillator looks to be in the beginning stages of what could prove to be a multi week corrective process and some lagging from this area is possible as is also the case with the DJIA and the NYSE Composite. In fact if are going to get a decent rally given the technical position of the averages I would be inclined to look for the NASDAQ and the S&P to a smaller extent to get the bulk of it. Short-term sentiment indicators such as the put to call ratio and the Rydex ratios have also improved. Neither are close to levels consistent with important lows but are in a decent enough position to support a rally of some sort. However, given there history of late a rally lasting for more than a few days would, in all likelihood move these indicators back towards negative levels. Frankly we need to see a lot better readings from the sentiment indicators than we are seeing currently to support the idea that an important low was in place. This can be readily seen by the latest report from Investors Intelligence, which came in at 57.8% bears and only 30.4% bulls. Granted the bulls have dropped from a 14-year high of 61.8% but the number is still very negative and more consistent with tops not bottoms. I moved back to neutral on both the short and medium-term on Monday and remain so. Long-term I remain bearish. The bonds are neutral both short and medium-term. The XAU is at a critical level and needs to hold now. Further weakness would not only violate support but also break the XAU below an important lower trend line. I am neutral short-term. I am going to stay bullish on the medium and long-term but that could change as early as today.

We were stopped out of the remaining 25% short position on the QQQ’s for an 8.02 point gain. Our average gain on the entire position was 6.75  points.

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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