DAILY TECHNICAL MARKET COMMENT

By: Larry Katz

February 28, 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	02/27/2001	02/26/2001	02/23/2001	02/22/2001	02/21/2001
Breadth oscillator	-207	-116	-274	-254	-162
Volume oscillator	-141.7	-105.1	-185.6	-164.6	-168.6
A/D ratio	.98	1.05	.89	.90	.95
Three day oscillator	+124	+368	-565	-717	-671
McClellan oscillator	-94	-93	-176	-171	-144
Open 10 day Arms	1.11	1.11	1.16	1.14	1.22
10 Day Arms	1.15	1.13	1.19	1.17	1.25
CBOE P/C ratio	.79	.52	.71	.78	.72
OEX P/C ratio	.75	.76	1.18	1.67	1.20
New highs	106*	55	26	33	67
New lows	22*	13	37	36	37

*These are preliminary numbers and will be adjusted tomorrow

The DJIA lost 6 points and the S&P gave up nearly 10 points. Volume ran slightly below Monday coming in at 1.09 billion shares. The A/D line lost 150 units. The new highs and the new lows expanded. The Russell 2000 lost 9.56 points. It closed on its low of the day and gave back nearly all of Monday’s gains. The short-term remains negative. The medium-term is neutral. The Value-line lost 16.80 points. It closed on its low of the day and gave back most of Monday’s gains. The short-term is negative. The medium-term is neutral. The NASDAQ Composite lost 100 points and the NASDAQ 100 lost 133 points. They closed on the low of the day and gave back all and hen some of Monday’s gains. The DJTA lost 7 points. The short-term is neutral. The medium-term is neutral but weak. The DJUA and UTY closed higher but off their session peaks. The short-term is neutral but close to going negative. The medium and long-term remain negative.

The hourly chart of the S&P from Friday is best counted as a three and while it may only be the “a” wave of a larger corrective pattern yesterday’s high was right at a 50% retracement of the decline from February 15. While I can not rule out a slight move up above yesterday’s high to complete a more complex pattern that was about as far as a rally should retrace if indeed it is a fourth wave so that level does loom as important to the preferred count. The rally was a bit more complex than what is being counted as wave .2 of iii but if correct and we are in a fourth wave of some degree it is possible that a triangle may unfold and that could keep the S&P in a trading range of some sort for a bit longer. A slight break of yesterday’s high would not harm the count but a move much above initial resistance would bring it into question so obviously the next day or two will be important. The DJIA rallied past a .618 retracment of the decline from last Tuesday’s high suggesting the rally from Friday is correcting the entire post February 6 decline and all but confirming that the decline from February 6 is corrective. Where this fits in the bigger picture remains a mystery but will eventually become clear. For now on the DJIA I am going to pass. The NDX failed to take out Monday’s high and moved below important support related to the rally from last Friday. The decline from Monday’s high is not yet impulsive and that leaves open the potential that it is a “b” wave of a flat from Friday but much more weakness early today would likely confirm that the NDX is in wave .5 of iii from January 24. Support: S&P:1249-1251, 1236-1238, DJIA; 10,540-10,547, 10,450-10,460, NDX; 1920-1940, 1840-1860. Resistance: S&P; 1264-1265, 1272-1274, DJIA 10,750-10,765, 10,900-10,920, NDX; 2016-2021, 2050-2060.

The DJIA held up quite well and closed with only a small loss. The S&P closed a little of its lows while the NASDAQ averages as well as the small cap averages closed on their lows of the day. The averages in any case traced out small reversal patterns, and other than the DJIA, which was relatively flat showed last hour weakness and closed poorly. Volume was again light and the fact that the market was higher most of the first half of the session shows that once again we had little if any conviction behind the buying. The new highs on the other hand did expand and breadth was only slightly negative although we did get a modest expansion in the new lows. The internal picture was mixed.

The CBOE put to call ratio moved up sharply and was close to bullish. The OEX ratio moved down sharply and was negative. The Rydex ratios are still in fairly good shape. The breadth oscillator moved lower and is close to oversold. The volume oscillator moved lower and remains oversold. The 3-day oscillator is neutral. The McClellan oscillator was near unchanged. It is close to oversold. The 10-day and the open 10-day Arms are oversold and bullish. 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.

The DJIA held up well and seemed to once again be the beneficiary of broad based weakness in technology issues. In the recent past when this occurred we had also seen some strength in the small cap stocks as represented by the Value-line. However, yesterday even the Value-line did not hold up and in fact closed on its low of the day leaving it primarily to the DJIA. It looks as though the same haven of the “old economy” is beginning to narrow. Most of the momentum indicators are at or near oversold levels. There are levels of oversold that are normal oversold and when those levels are reached they tend to coincide with trading lows. There are also levels of oversold that are extreme and when reached are to be viewed in the same light as thrust levels on the upside. This is not unlike what we saw in early January and that led to higher prices for several weeks as momentum began to weaken. This is what we saw last week on a number of indicators suggesting that even if last week was a momentum low it was oversold enough to expect that price low would occur after a momentum low. This is where we are now. So while we are indeed oversold we cannot view this necessarily in the same light as we view a normal oversold condition. We did see improvement yesterday in the CBOE put to call ratio, which moved from very bearish to near bullish and the Rydex ratio is also in fairly good shape. Price patterns and the wave counts are not clear. The NASDAQ is clearly the weakest, the DJIA the strongest while the S&P is in the middle. I am still of the view that the averages, or at least the S&P and the NASDAQ are in the process of completing a medium-term bottom. That process may involve not one but possibly two lower lows below last weeks low. As such we are still at risk but given the momentum and sentiment backdrop the likelihood of an accelerated decline from here is minor. I am going to remain neutral for the short and medium-term on the DJIA, S&P and NDX. Long-term I remain bearish. The bonds rallied strongly today but remain within the trading range from January 3. I am neutral short-term. Medium-term I remain bearish and view this as part of a topping process. The XAU closed lower after an early morning rally failed. It is extremely overbought on a very short-term basis and should begin to correct the latest rally. However, any decline from here should be quite manageable and should not change the overall bullish pattern. I remain bullish in all time frames.

We sold our long position in the QQQ’s for a small .10 point loss per the mid morning hotline. 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.