DAILY TECHNICAL MARKET COMMENT

By: Larry Katz

February 27, 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	Neutral
Long Term	Bear	Bear

Indicator	02/26/2001	02/23/2001	02/22/2001	02/21/2001	02/20/2001
Breadth oscillator	-116	-274	-254	-162	-41
Volume oscillator	-105.1	-185.6	-164.6	-168.6	-102.8
A/D ratio	1.05	.89	.90	.95	1.01
Three day oscillator	+368	-565	-717	-671	-390
McClellan oscillator	-94	-176	-171	-144	-99
Open 10 day Arms	1.11	1.16	1.14	1.22	1.18
10 Day Arms	1.13	1.19	1.17	1.25	1.20
CBOE P/C ratio	.52	.71	.78	.72	.70
OEX P/C ratio	.76	1.18	1.67	1.20	1.70
New highs	96*	26	33	67	76
New lows	22*	37	36	37	28

*These are preliminary numbers and will be adjusted tomorrow

The DJIA gained 200 points and the S&P added 22 points. Volume eased from Friday coming in at a low 1.11 billion shares. The A/D line added over 1200 units. The new highs expanded a bit and the new lows eased. The Russell 2000 gained 10.86 points. The short-term is negative and is close to resistance. The medium-term is neutral. The Value-line gained 26.71 points and close on its high. The short-term is negative and close to resistance. The medium-term is neutral. The NASDAQ Composite gained 46 points and the NASDAQ 100 added 41 points. Both averages closed near the early morning high. I am neutral short and medium-term. The DJTA gained 48 points. The short-term is being upgraded to neutral. The medium-term is neutral but weak. The DJUA and UTY closed higher but well off their highs of the day and closer to the lows. The short-term remains neutral but close to turning negative. The medium and long-term remain neutral.

The S&P moved above Friday’s high confirming the decline from February 15 as a completed wave on the daily chart. My preferred count has the post February 15 decline labeled as wave .3 of iii from January 31. The alternate count has the post February 15 decline labeled as a very extended fifth wave from the January 31 peak. The rally from Friday’s low has slightly exceeded a .383 retracement of the post February 15 decline but has not yet retraced a 50 percent of that decline. Thus it is still possible that the preferred count is correct. This leaves some room on the upside but not a lot if indeed the rally is a small fourth wave as expected. Wave .2 of iii was simple so we should expect to see wave .4 be more complex and since it may be a fourth wave we may also see a triangle unfold. The next couple of days will tell us which of the counts is correct. The DJIA rallied well past a 50% retracement of the decline from February 20 making it difficult to count last weeks decline as a third wave from February 6. Once again this leaves open a number of possibilities for this average. If the rally from late November was a “c” wave diagonal triangle from October 18 then we do not need to see the DJIA decline in a five-wave pattern but if the rally from that low was a “b” wave of a small irregular from November 6 we do need to see a five. If the former is correct than the entire post October advance is also a corrective pattern. Right now its best to go back to a wait and see approach with the DJIA. The NDX did not make it back to a .383 retracement of the decline from February 15 but did come close. This average is in a similar position as the S&P as I either finished five-waves down from February 15 or still needs a couple of 4’s and 5’s to complete the pattern. It is much more likely from an Elliott perspective that the NDX not the S&P finished its pattern on Friday but nothing yet has been confirmed and how this average does in the next day or two will tell a lot. Even if the rally is a fourth wave we should see further gains on a very near-term basis. Support: S&P; 1257-1258, 1247-1248, 1234-1236, DJIA; 10,550-10,556, 10,500-10,508, NDX; 2040-2-46, 1997-2007. Resistance: S&P 1272-1274, 1280-1282, DJIA; 10,640-10,650, 10,750-10,765, NDX; 2121-2127, 2165-2172.

The market closed sharply higher with broad based participation as nearly all of the key averages participated. Although on a percentage basis the NASDAQ did decently it nonetheless lagged the listed averages with the DJIA once again leading the way. The DJIA, S&P and NYSE Composite closed on their highs and moved strongly above their early morning peaks. The NASDAQ averages closed near the highs but below their opening level. The rally was accompanied by strong breadth and we also saw a modest expansion in the new highs. However, volume slowed from levels seen late last week and was no better than what we have been seeing on average.

The CBOE put to call ratio moved down sharply and was back to very low and negative levels. The OEX ratio did likewise and was well below 1.00. The Rydex ratios on Friday were positive. They most likely eased today but how much will not be known until later as they are released well after the publication of this report. If they are real bad I will put out a special update later tonight. The breadth oscillator moved higher as did the volume oscillator. The breadth oscillator is neutral but still closer to oversold and the volume oscillator is still slightly oversold. The 3-day oscillator is neutral. The McClellan oscillator moved higher. It is neutral but close to oversold and still below zero. The 10-day and open 10-day Arms moved lower but are still oversold and positive. The 5-day Arms is neutral and the 21-day Arms is oversold and positive. The daily range oscillators are neutral but still close to oversold. The daily trend oscillators are negative on all three averages.

The market put on a heck of a performance yesterday scoring solid gains across the board led by a surge in the DJIA. The rally itself did not come as much of a surprise, the market of course was quite oversold going into Friday’s close. We also saw very strong rallies both Thursday and Friday last week following sharp early losses so a follow-through yesterday was not out of the realm of normal market behavior. Volume, however, eased sharply from late last week and that suggests that there was not a lot of conviction behind the buying but more a reaction to the deep oversold condition that was left in place last Friday. Some of that has been relieved but the majority of the indicators such as the volume oscillator and the McClellan oscillator could support further gains on a near-term basis. This could cause some problems with the wave counts but we’ll cross that bridge when and if we get to it. On the other hand, I was quite bothered by the sharp drop in the CBOE put to call ratio yesterday only one day after such a sharp decline as we saw last week. This is not unlike what we saw in early January. It killed the rally then and could very well do so now as well. The wave structure and price patterns on the S&P do allow for a bit more but if correct the bulk of the rally is probably behind us. The momentum backdrop is more favorable but overall my view is that the rally is most likely close to over, at least this portion of it anyway. Short-term I remain neutral on all three averages. Medium-term I remain of the view that the averages are close to completing a good trading low that could actually support a sustained rally. The market has made great improvements technically and in my view the worst is behind us. However, at this point I do not think that the final lows are in place and that move back below last weeks low is likely before a bottom will be reached. Even so, the prudent thing to do is move back to neutral on the medium-term. I am neutral on the NDX. Long-term I remain bearish. The bonds had a good session and remain within their nearly two month long trading range. I am neutral short-term and bearish medium-term. The XAU had a spectacular session closing on its high and well above the late December peak. If there were any doubts that the rally from mid February was a third or “c” wave from mid October they have been completely erased with yesterday’s rally. The XAU is very extended and could correct at anytime. However, it remains bullish in all time frames.

We bought the QQQ’s per the morning hotline at 50.40. They closed at 52.15. Keep the stop at 49 and raise it to 50.20 on any move above 52.60. Sell ½ at 53.20. Make sure to call the early morning hotline at 7:45 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.