DAILY TECHNICAL MARKET COMMENT

By: Larry Katz

February 22, 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	Neutral	Neutral
Medium Term	Neutral	Bear
Long Term	Bear	Bear

Indicator	02/21/2001	02/20/2001	02/16/2001	02/15/2001	02/14/2001
Breadth oscillator	-162	-41	+21	+56	+72
Volume oscillator	-168.6	-102.8	-54.9	-36.7	-42.2
A/D ratio	.95	1.01	1.05	1.07	1.08
Three day oscillator	-671	-390	-332	+63	-59
McClellan oscillator	-144	-99	-77	-35	-38
Open 10 day Arms	1.22	1.18	1.12	1.10	1.13
10 Day Arms	1.25	1.20	1.13	1.14	1.15
CBOE P/C ratio	.72	.70	.89	.64	.73
OEX P/C ratio	1.20	1.70	1.38	.74	1.11
New highs	118*	76	67	89	92
New lows	50*	28	18	11	20

*These are preliminary numbers and will be adjusted tomorrow

The DJIA lost 204 points and the S&P 23 points. Volume was about in line with Tuesday at 1.07 billion shares. The A/D line lost nearly 1000 units. The new highs eased a bit and the new lows expanded. The Russell 2000 lost 7.83 points. It held up better than the listed averages but closed near the lows of the day. The short-term remains bearish. The medium-term is neutral. The Value-line lost 17.73 points and also closed near its session low. The short-term is negative. The medium-term is neutral. The NASDAQ Composite lost 49 points and the NASDAQ 100 lost 36 points. They held up better than the DJIA but still closed near the lows of the day. The 100 moved below its January low while the Composite held by less than 6 points. They are negative short and medium-term. The DJTA lost 33 points. The short-term is negative. The medium-term is neutral. The DJUA and UTY were about flat but did close well off their session high and near the low. The short-term is neutral but weakening. The medium and long-term remain bearish.

The S&P broke below last night’s support and more importantly, below its December 21 low. The decline from last Thursday can be counted as a five-wave pattern on the hourly chart. However, it is more likely that the late decline yesterday is part of a third of a third from last Thursday. However, the fact that we do have an acceptable five already in place does allow for a rally, and that needs to be respected. After several days the pattern from January 24 has become a lot more clear, and does indeed look impulsive. In fact, it is possible to count the post February 15 decline as a fifth wave on the daily chart from January 31. Under this count, however, wave 5 is the extended wave and just as it is on the hourly chart within the post February 15 decline itself it is more likely the decline is a third of a third, and that is how I am approaching it at this time. Where the post January 31 decline fits within the post September decline will be discussed in detail in the letter this weekend. The DJIA broke sharply yesterday and also violated some important short-term support. The decline from Tuesday can be counted as a five on the hourly chart so a bounce may occur at anytime. However, it is likely that the DJIA is in the throes of a third of a third and any bounce will be only very temporary. The NSADAQ 100 hourly chart from February 15 can be counted as a five and that allows for a rally at anytime. There is a bit more room for wave 5 to fall, however, much further weakness today would be an indication that what can be counted as wave 5 could instead be part of wave 3 and allow for the decline to extend further. Support: S&P; 1230-1235, 1218-1221, DJIA; 10,345-10,357, 10,175-10,195, NDX; 2040-2050, 1960-1990. Resistance: S&P; 1264-1265, 1272-1273, 1283-1285, DJIA; 10,600-10,610, 10,650-10,663, 10,760-10,780, NDX; 2118-2125, 2190-2200.

The averages all closed lower yesterday but we did see the NASDAQ averages hold up a whole lot better than the DJIA or the S&P. The latter sold off sharply with the S&P moving below its December 21 low. The NASDAQ Composite held its January low by a hair but the NDX did move below its January low both on a print and closing basis. However, all of the averages closed near the low of the day and sold off sharply in the last hour. Volume was once again very light. As I have stated on numerous occasions the low volume on declines is not bullish but in fact bearish as it reflects a high degree of complacency. Breadth was quite negative at almost two to one and is beginning to weaken. The new highs eased a bit but are still way to high for a god low while the new lows expanded again and also confirmed price from January’s peak.

The CBOE put to call ratio moved up a bit but only ever so slightly and is still on better than neutral. The OEX ratio moved down sharply and was low neutral. The Rydex ratios have improved and are getting closer to levels seen near lows. We also saw some improvement from the VIX as it did move up but it is still not at levels seen near good market lows. The breadth and volume oscillators moved lower. The former is neutral but getting closer to oversold while the volume oscillator is oversold. The 3-day oscillator is oversold but has not yet reversed the sell signal. The McClellan oscillator is also oversold but still on its sell signal. The 10-day and open 10-day Arms moved higher and are very oversold. The 5-day and 21-day Arms are also oversold. The daily range oscillators are negative and not yet oversold. They have also confirmed the price action. The daily trend oscillators are negative on all three averages.

The NASDAQ held up throughout most of the session and for a good part of the day were in positive territory. The DJIA, S&P and NYSE Composite were far weaker as the selling really began to broaden out. That was clear by the nearly 2 to 1 negative breadth. The relative weakness in the DJIA and the NYSE was long overdue and in my view just beginning as these averages have a lot of catching up to do. A number of key indicators are either oversold or close to oversold and that could shortly set the stage for a good rally. However, I do not see enough from these indicators to suggest that a sustainable rally is at hand but it looks to be getting closer. Keep in mind that momentum peaks prior to price and in strong oversold readings bottoms prior to price as well, and a number of these indicators are close to levels that would indicate a strong oversold reading. Short-term sentiment indicators are also improving, but they are not quite there. In, fact, yesterday’s CBOE put to call ratio was rather disappointing as it remained close to Tuesday’s level and is not close to what we have seen at previous trading lows. The Rydex ratio has improved and so has the VIX. However, the latest reading from Investors Intelligence showed a rise in bulls and drop in bears, with the bulls back above 61%. The bull/bear ratio is the worst in nearly 2 years. Of course the last time it was this bad prices had been rising for over 8 months while currently we are at multi month lows on the S&P. The short-term looks to have more to go but given the wave structure and the oversold condition we could be close to a rally at anytime. However, my expectation is that any initial rally will most likely fail and the best place to be short-term is neutral. The medium-term is another story. Yesterday confirmed the negative signal from the weekly trend oscillators and while we may bounce, there look to be a good deal more to go. I remain bearish on both the S&P and NDX for the medium-term and I am moving to bearish on the DJIA as well. The bonds, in spite of weakness in equities sold off and closed poorly. I am going to remain neutral short-term while maintaining my negative medium-term view. The XAU remains bullish in all time frames and if the price pattern is correct we should b about ready to continue the rally that got underway late last week.

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.