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DAILY TECHNICAL MARKET COMMENT
*These are preliminary numbers and will be adjusted tomorrow The DJIA gained 16 points while the S&P lost 7 points. Volume was about in line with Thursday at 1.28 billion shares. The A/D line added 800 units. The new highs expanded while the new lows eased a bit. The Russell 2000 gained 3.58 points closing closer to its high of the day. The short-term is neutral. The medium-term is neutral but weak. The Value-line gained 6.37 points and closed slightly better than mid range. The short-term is neutral. The medium-term is neutral but weak. The NASDAQ Composite lost 65 points and the NASDAQ 100 lost 86 points with both closing near the lows of the day. They also traced out negative intra day patterns. I am neutral short and medium-term but both are still weak. The DJTA gained 45 points reversing most of Thursday’s losses. The short-term is neutral. The medium-term is neutral but close to going negative. The DJUA and UTY closed slightly higher. The short-term is neutral but close to completing a top. The medium and long-term remain negative. Things are beginning to get very interesting Elliott wise. The decline last week into Thursday’s low is a clear seven-wave corrective pattern on the hourly chart. Friday’s rally also moved above Thursday’s high confirming the decline into Thursday as a completed wave on the daily chart. This decline if the preferred count is correct, is a “b” wave. The rally from Thursday’s low is a confirmed three-wave corrective pattern on the hourly chart. If the “B wave was part of a flat it should be followed by a “c” wave. C waves are always fives, and since the rally is a three it is next to impossible to count it as a five. Moreover, the “c” wave of a flat would be expected to carry above the peak of the “a” wave. If this were to occur it would take the S&P above last weeks high and that in turn would confirm the post January 31 decline as a completed wave on the weekly chart. Again if the preferred count is correct then the low February 23 completed wave .3 of iii from January 23. Given all the above if indeed the post February 23 rally is wave .4 of iii then the only way it can be is if the pattern is a triangle. That said Friday’s rally either completed wave “c’ of the triangle or only wave “a” of “c”. In either csse we should look for the S&P to remain in a trading range a bit longer. A move below last weeks low would force me to accept the decline last weeks as wave .5 of iii or the pattern from last weeks high is subdividing and tracing out a diagonal triangle. A move above last weeks high would then confirm the post February 15 decline as a very extended fifth wave from January 31. The rally Friday on the DJIA like the S&P is best viewed as a three-wave pattern on the hourly chart. The decline last week like that of the S&P was also a three and did not move below the low of February 23 but it did come close. The best count on the DJIA for the short-term is that the rally on Friday was part of a possible triangle from February 23. As for the bigger picture there is still no real good high probability count so I will just stand aside for now. The NDX also rallied in three waves on Friday but unlike the S&P the decline into Thursday can be counted as a five with wave 5 a diagonal triangle. The rally on Friday fell just short of a .618 retracment of the decline from Monday. Thus there are a number of possibilities for the short-term. It is possible that Friday’s rally was only a small second wave from last Monday with a third wave decline dead ahead. \It is also possible that Friday’s rally was only the first wave of a more complex pattern. We should know the answer to that today. Support: S&P: 1226-1228, 1214, 1198-1200, DJIA; 10,400-10,420, 10,280-10,300, 10180-10,200, NDX; 1840-1860, 1740-1760. Resistance: S&P 1251-1252, 1268-1270, DJIA; 10,750-10,765, 10,900-10,925, NDX; 2000-2008, 2100-2120. Friday reversed the pattern seen on Thursday with the DJIA ending the session higher while the S&P and the tech heavy NASDAQ averages closing lower. The averages after reversing early weakness to push above Thursday’s high sold off late in the day and closed poorly. The S&P did hold its early low as did the NASDAQ averages but the latter barely so. However the intra day price pattern was clearly negative. Volume on the NYSE was about in line with Thursday, good but that’s about it. Breadth was solid and gain far stronger than the averages. We also saw some expansion in the new highs and a slight easing in the new lows. The CBOE put to call ratio moved up nicely and was slightly bullish. The OEX ratio moved lower and was quite negative. The Rydex ratios are positive but the asset levels in Ursa and Arktos are still not close to levels seen at good lows and that remains a problem. The breadth oscillator is neutral but still closer to oversold. The volume oscillator is oversold. The 3-day oscillator is neutral. The McClellan oscillator moved up nicely on Friday. It is neutral but still below zero. The 10-day and open 10-day Arms are oversold and positive. The 5-day and 21-day Arms are also oversold. The daily range oscillators are neutral but weak. The daily trend oscillators are negative across the board. The market has a tendency to rally early in a new month. Sometimes, this is reflected more in the secondary averages rather than the big Cap averages and that seems to be what occurred late last week as the Value-line and to a lesser extent the Russell 2000 did OK while the DJIA, S&P and the NASDAQ averages closed lower. The strong performance by the A/D line on Friday may also be related to this phenomena as well. The last several days has seen a marked increase in intra day volatility as the averages have had numerous directional changes. Increase in volatility tends to precede a change in trend, especially after a trend has been in place for a while. During up-trends stocks move from strong hands to weak ones and the opposite occurs in declining trends. I believe that we are in that process now and that also seems to fit in well with the preferred wave count. I do not think that the post January decline is complete but nearly everything I am looking at does point to the idea that it is close. Momentum is mixed with some indicators oversold while others like the McClellan oscillator have moved to neutral. Short-term sentiment has also improved with the CBOE put to call ratio in a position to support a bounce and the Rydex ratios near levels that could also support a bit more rally. However, while they have definitely been some improvement we have yet to see any real capitulation. A large volume day on the downside, a one-day reading from the put to call ratio near 1.00 as seen near other important lows. Moreover, while the Rydex ratios are OK we still have not seen any sort of real rise in the Arktos or Ursa fund assets such as we saw in October or late December. Moreover, we are still faced with a very negative reading from Investors Intelligence and that could take a while to get back to even a less negative level let alone a neutral one. The bottom line is that while we are getting closer we still have some work ahead of ourselves before a solid rally can get underway. Short-term, as long as last weeks low holds a rally back towards last weeks high is possible but that is about all I see at this time. This should also help to set up the boundaries of the trading range or triangle in Elliott terms. I remain neutral on both the short and medium-term. Long-term I am bearish. The bonds broke sharply on Friday as they reached the upper end of their trading range. I remain neutral short-term and expect the trading range to last a bit longer. Medium-term I remain bearish. The XAU remains in a small fourth wave from February 15. The pattern may extend a bit more but a move back above the February 27 peak should follow. 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.
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