*These are preliminary numbers and will be adjusted tomorrow

The DJIA lost 69 points and the S&P lost 22 points. Volume slowed from Friday’s pace coming in at 1.1 billion shares. The A/D line lost 450 units. The new highs and the new lows expanded. The Russell 2000 lost 8.14 points. The short-term is bearish. The medium-term is being downgraded to neutral from slightly bullish. The Value-line lost 15.72 points. The short-term is bearish. I am moving from slightly bullish to neutral on the medium-term. The NASDAQ Composite lost 106 points and the NASDAQ 100 lost 117 points. Both closed near the low of the day. The short-term is neutral with a negative bias but is getting oversold. Although I think that this decline may be the final leg of the post September decline the medium-term indicators have turned negative so I am moving back to bearish. The DJTA lost 17 points and traced out a small reversal. The short-term remains bearish while the medium-term is now neutral. The DJUA and UTY closed higher. The short-term is neutral and at very important resistance. The medium and long-term are negative.

The S&P continued its move lower breaking well below Friday’s low and confirming Friday’s break of important support. I am still not clear on how to approach the post January 24 decline nor the decline from last Thursday’s peak. The weekly chart from late January remains down and the daily chart can be approached in any number of ways including the possibility that the S&P is tracing out a series of small 1’s and 2’s with a third of a third dead ahead. The decline from Thursday’s high can be counted as a five on the hourly chart and that could allow for a bounce. However, the daily chart remains down so the pattern may extend and given the look of it I favor that outcome at this time. The DJIA is still a difficult read Elliott wise. The rally yesterday makes it difficult indeed to count the action from February 6 as impulsive. It is not impossible but very very difficult. That also makes it difficult to count that pattern as a “c” wave from November 6 as discussed yesterday. However, if the alternate count discussed yesterday is correct and the post February 6 decline is wave “d” of a larger “C” wave diagonal triangle from Either late November or December the DJIA needs to hold right here as much further weakness from these levels would violate levels that would allow the decline to be a fourth or “d” wave. There are of course other possible counts but the two discussed yesterday seem to fit best. Obviously the next couple of days will be important in the DJIA. The hourly chart from last Thursday on the NDX is still not able to be counted as impulsive but it sure is taking on impulsive characteristics. I am still not sure just where this wave fits within the post January 24 decline or for that matter where the post January 24 decline fits within the post September decline. However, the weekly chart from January 24 remains down as does the monthly chart from September. As such this decline is part of the post September pattern and the decline from Thursday part of the post January 24 decline. Given the numerous overlaps on the daily and hourly chart it is difficult to count the pattern as impulsive but like the S&P it is possible that the NDX is tracing out a number of small 1’s and 2’s with a third of a third directly ahead. If that is he case we will know it soon enough. For now we need to sit back and gather a bit more information to come up with an accurate Elliott assessment but that should be forthcoming. Support: S&P; 1278-1280, 1260-1263, DJIA; 10,680-10,690, 10,530-10,544, NDX; 2050-2060, 2000-2015. Resistance: S&P; 1297-1298, 1311-1313, DJIA; 10,835-10,842, 10,900-10,915, NDX; 2155-2160, 2194-2202.

The DJIA traced out a negative reversal day and closed near its low of the day. The NASDAQ averages and S&P were lower from the opening bell and also closed at or near their lows. The NASDAQ averages moved decisively below last weeks low and are very close to their early January  low. The S&P is not far way either. Volume eased. a bit yesterday and was back to where it has been for most of the past several weeks suggesting that Friday’s modest expansion was more or less related to options expiration. The A/D line lost a bit of ground but as it has been doing for most of the year it did hold up better than the averages. The new highs expanded ever so slightly but are weakening. More importantly, we got another nice expansion in the new lows confirming once again the new reaction low in the averages.

The CBOE put to call ratio eased from Friday and was on the cusp of bearish. This was quite disappointing given the poor performance by the market and suggests that last weeks spike may have indeed been related to options expiration. The Rydex ratios are neutral and need to improve a lot more before becoming positive. The breadth and volume oscillators moved lower with the volume oscillator now oversold. The 3-day oscillator remains on a sell signal, confirming price but is still not oversold. The McClellan oscillator is borderline oversold. The 10-day and open 10-day Arms are oversold and positive. The five-day Arms is slightly oversold as is the 21-day Arms. The daily range oscillators are negative, confirming price and not yet oversold. The daily trend oscillators are negative across the board.

While the DJIA has continued to hold up exceptionally well the S&P and “tech heavy NASDAQ averages have been under serious pressure ands are now a stones throw from breaking their January low.  This is something I mentioned as a strong possibility back in January and was an event that may very well be needed to correct the excesses and complacency that remained in place in spite of the sharp from October. There has been some improvement from the momentum side of the equation. The gross overbought condition seen in early January from a number of indicators has been corrected with volume measures in particular back to modest oversold levels. The McClellan oscillator is now borderline oversold but in my view is just beginning to correct the extreme readings seen by the summation index and needs to spend a lot of time below zero to do so. Short-term sentiment indicators have also improved but neither the 10-day moving average of the CBOE put to call ratio nor the Rydex ratios are anywhere near levels seen at the early January or late November low. We also saw some improvement in the VIX yesterday but it too is not close to levels seen at good trading lows. So, while there is definitely improvement in the air and enough to support a bounce from current levels we are not yet at levels that would indicate the current decline was over and any rally that may unfold from current levels as only part of the ongoing decline. While we may be getting closer we are not there. Short-term I am going to remain neutral. The weekly trend oscillators have reversed back to negative from positive on both the S&P and the NASDAQ averages. This along with the likelihood of a break of the January low has moved me back to bearish on the medium-term for both the NASDAQ averages and the S&P. As for the DJIA I will remain neutral. Long-term I am bearish. The medium-term indicators on bonds remains negative so I will maintain my bearish position Short-term I remain neutral and higher prices are likely on further equity weakness. The XAU’s failure to follow-through on Friday’s strong breakout is a bit disappointing but did not invalidate the potentially bullish pattern discussed yesterday. I remain bullish in all time frames but if the pattern is correct we need to begin to move higher soon.

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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