DAILY TECHNICAL MARKET COMMENT

By: Larry Katz

February 23, 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	Bear	Bear
Long Term	Bear	Bear

Indicator	02/22/2001	02/21/2001	02/20/2001	02/16/2001	02/15/2001
Breadth oscillator	-254	-162	-41	+21	+56
Volume oscillator	-164.6	-168.6	-102.8	-54.9	-36.7
A/D ratio	.90	.95	1.01	1.05	1.07
Three day oscillator	-717	-671	-390	-332	+63
McClellan oscillator	-171	-144	-99	-77	-35
Open 10 day Arms	1.14	1.22	1.18	1.12	1.10
10 Day Arms	1.17	1.25	1.20	1.13	1.14
CBOE P/C ratio	.78	.72	.70	.89	.64
OEX P/C ratio	1.67	1.20	1.70	1.38	.74
New highs	74*	67	76	67	89
New lows	50*	37	28	18	11

*These are preliminary numbers and will be adjusted tomorrow

The DJIA was flat and the S&P lost 2.50 points. Volume expanded over Wednesday reaching 1.28 billion shares. The A/D line lost 900 units. The new highs eased and the new lows expanded a bit. The Russell 2000 lost 6.25 points. The short-term remains negative but is also oversold so expect a rally. The medium-term is neutral. The Value-line lost 8.90 points but also closed well off its early low and about mid range. The short-term is still negative but also very oversold. A bounce is likely. The medium-term is neutral. The NASDAQ Composite lost 24 points and the NASDAQ 100 lost 26 points. Both closed well off the lows of the day and about at the mid point of the days range. short-term I remain neutral but with a bottoming bias. I am moving from bearish to neutral on the medium-term also with a bottoming bias. The DJTA lost 25 points and closed closer to its low. I am bearish short-term and neutral medium-term. The DJUA and UTY closed with slight gains but also well off their highs. The short-term is neutral but weakening. The medium-term and long-term remain negative.

The hourly chart of the S&P may be counted as a completed five-wave pattern from the February 15 peak at yesterday’s low with a very extended fifth wave. The alternate count is that yesterday completed only wave .3 of iii and we need to see a couple of 4’s and 5’s to finish off the pattern. A move above Thursday’s high near 1259 would confirm the pattern as complete on the daily chart. The decline from February 15 on the daily chart may be counted as a fifth wave from January 31 but again only if wave 5 is the extended wave. The other possibility and one that makes more sense to me at this time is that the post February 15 decline is wave 3 of 3 from January 31 with the daily chart needing a couple of 4’s and 5’s to complete the pattern. My preference is that we need a couple of 4’s and 5’s but even so we are at or very near the end of the bulk of the decline and a good rally is being set up. The DJIA hourly chart can be counted as having completed five waves down from last Thursday at yesterday’s low but also with a slightly extended fifth wave. The late test of those lows could very well have been what was needed to satisfy Elliott’s rule of an extended fifth wave being doubly retraced. This applies to the S&P as well. The five down allow for a rally but only to correct the post February 15 decline, as it does not look as though the decline from early February is complete. The NDX hourly chart from February 15 can be counted as an almost text-book five wave pattern with waves 1 and 5 being nearly perfectly equal. It is possible to count the decline from February 15 as a fifth wave from January 24 and the post January 24 decline as a fifth wave from September 1. Thus it is quite possible that the entire post September 1 decline is behind us. The low yesterday stopped right at very important support and more than a marginal break of that support would indicate that the count is wrong and allow for much lower prices. Support: S&P; 1225-1230, 1218-1221, 1198-1205, DJIA; 10,345-10,357, 10,175-10,195, NDX; 1940-1960, 1745-1775. Resistance: S&P 1262-1264, 1280-1283, DJIA; 10,590-10,603, 10,699-10,714, NDX; 2085-2096, 2137-2145, 2246-2259.

The price action yesterday, in spite of the losses was fairly good as the averages were able to come back from sharply lower prices early on to close with only very minor losses. The last hour was exceptionally good as the averages looked to have had a successful test of the lows and then rallied into the close. It was not a reversal day but the session did show a lot of directional changes and a good deal of volatility. And this is a good sign of a pending change in trend. There was also a decent expansion in trading volume. It was not high enough to be viewed as a complete capitulation but it did expand and that tends to confirm the price pattern. Breadth was negative and nearly 2 to 1 negative but breadth does sometimes lag. However, after several months of strong breadth this weakness does bear keeping an eye on. The new highs eased again but they should on down days. The new lows did expand and that did confirm price, however, they are also showing longer-term divergences as they have not come close to levels seen in late December although the S&P and the NYSE Composite have moved below their respective lows.

The CBOE put to call ratio did move up and that was a plus but it did not reach the kind of readings we have seen at important lows but it is OK. The OEX ratio also moved higher and was bullish. The Rydex ratios are at bullish levels but the asset levels in Arktos and Ursa while improving are still not at levels seen at important lows. The breadth oscillator is now close to oversold while the volume oscillator is deeply oversold. The 3-day oscillator is also oversold but still moving lower. It is now neutral but not yet bullish. The McClellan oscillator is now deeply oversold and not far from where it was in October. The 10-day and open 10-day Arms moved lower. They are still oversold and positive. The 5-day Arms is neutral and the 21-day Arms is oversold and slightly positive. The daily range oscillators are getting closer to oversold but are not quite there and remain negative. The daily trend oscillators are negative on the DJIA, S&P and the NDX.

One of my bigger concerns over the past several weeks was that there was just too many bulls and too much complacency surrounding the market to allow for a full blown sustainable medium-term advance. The market action over the past few weeks has borne that out with both the NASDAQ averages along with the S&P breaking decisively below their December ands January lows respectively. Yesterday for the first time in a while I saw some indications of capitulation and clearly there has been a good deal of improvement in the indicators. The momentum indicators have not only corrected their overbought condition of early to mid January but a number are at or very near oversold levels, with some like the volume oscillator, the Arms indexes and the McClellan oscillator strongly oversold. While I am still troubled by the extremely negative readings from Investors Intelligence, and this is something that is going to take more time to correct, a number of other sentiment indicators have improved significantly. The CBOE put to call ratio is not where it was at the October or December lows when we had one day readings at or near 1.00 but the 10-day moving average is getting close. The Rydex ratio on Wednesday actually hit the same levels seen at both the November 30 and January 2 low. The asset levels in Ursa and Arktos are not at levels seen at those lows and that is a concern but the overall ratio is positive. The bottom line is that there has been a good deal of improvement from all of the areas of my focus, wave structure, momentum and sentiment. I think there is a very good chance that the NASDAQ averages have either seen or are very close to beginning a very strong medium-term rally. The S&P looks close but most likely is not done and could need a couple of more modest new lows in the coming weeks. However, the bulk of the decline is likely behind us. Short-term I am neutral. I am moving from bearish to neutral on the NDX for the medium-term. I am going to remain bearish on the S&P and the DJIA. Long-term I am bearish across the board. The bonds are neutral short-term and remain negative on the medium-term. The XAU had a strong session yesterday and closed near its high. I am bullish in all time frames.

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.