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*These are preliminary numbers and will be adjusted tomorrow The DJIA gained 29 points and the S&P added 12 points. Volume expanded a bit over Monday coming in at a still low 1.09 billion shares. The A/D line added about 60 units. The new highs contracted a bit and the new lows expanded. The Russell 2000 gained 5 points and closed near the session peak. The short term is neutral. The medium-term is neutral but weak. The Value-line gained 13.40 points and closed close to its session high. The short-term is neutral. The medium-term is neutral but weakening. The NADSAQ Composite gained 60 points and the NASDAQ 100 gained nearly 62 points. Both, however, closed near their lows. The short-term is neutral. The medium-term is also neutral but in the process of completing a bottom. The DJTA gained 41 points. The short-term is neutral. The medium-term is neutral and beginning to weaken. The DJUA and UTY closed slightly lower. The short-term is slightly negative and close to confirming a top. The medium and long-term remain negative. The S&P moved up into the area of important short-term resistance and close to last weeks peak. The rally from Friday’s low is so far a corrective pattern as was the rally from Thursday to Friday on the hourly chart. I can count the entire rally from last weeks low as a completed double three with the second three from Friday’s low almost perfectly equal to the first three. The daily chart remains positive so it is possible to see the rally extend and the second three actually may evolve as a five-wave “c” wave. However, if that is to occur the S&P needs to hold right near yesterday’s low as any further weakness would move it below levels that could be viewed as a fourth wave. I am still approaching the S&P with the idea that the pattern from February 23 is a small wave 4 triangle from February 2, with the current rally wave “c” of the triangle. As long as the S&P remains below last weeks high of 1272.76 this will remain my preferred count. The DJIA hourly chart from last Thursday is also best counted as a corrective pattern and at this time I can count it as a completed double three. The DJIA came within 8 points of last weeks high. As long as it remains below that peak of 10,698 it will be possible to count the DJIA as also being in a triangle from February 23. As far as the bigger picture is concerned there is still far too many possibilities although one thing is clear and that is the fact that the rallies and declines as far back as October remain corrective. The NDX rallied slightly past first resistance but is still well below last weeks peak. The rally from Friday’s low can be counted as a five and the entire rally from last Thursday can be counted as a completed a-b-c. In fact wave “c” was within a point of being perfectly equal in length to wave “a”. The daily chart remains up so it is possible to see the rally extend. However, a move below yesterday’s print low, which was only 3 points below the close would turn the daily chart down and confirm the rally as complete. The decline last week on the NDX, unlike the S&P can be counted as a five-wave pattern on the hourly chart. The decline from January 24 can to be counted as a five on the daily chart. It can be counted as a three wave pattern with the current rally wave 4 or we may need to see a couple of 4’s and 5’s to complete from January. At a minimum we need one more new low and as such the rally from last week can be counted as a fourth wave but whether it is all of wave 4 or only the “a” wave is not clear. Support: S&P; 1248-1250, 1241, 1233-1235, DJIA, 10,540-10,550, 10,440-10,452, NDX; 1973, 1955-1959, 1907-1913. Resistance: S&P 1262-1263, 1270-1272, 1280-1283, DJIA; 10,750-10,765, 10,900-10,925, NDX; 2040-2047, 2100-2120. Although closing higher, the averages closed poorly and well off their best levels of the day. The DJIA gave back most of is gains and the S&P did no better than a mid range close as did the NYSE Composite. The NASDAQ averages also closed well off their highs and due to a large gap on the opening actually closed close to the low of the day. The S&P also left a small gap but it is not nearly as pronounced as that seen on the NASDAQ averages. This left a modestly negative pattern in place and the late weakness especially following early strength on a gap is a short-term negative. Volume did expand over Monday’s total, which by the way was the lowest level of the year but the overall level wax still very low even by recent standards and continues to reflect very little conviction on the part of investors. Breadth was decent at the close but did no more than keep pace. The new highs on the other hand contracted a bit from both Monday and last Friday in spite of higher prices in the averages and that is a potential negative. The new lows eased greatly and were of little consequence. The CBOE put to call ratio moved down sharply reaching bearish levels but not excessively bearish levels. The OEX ratio moved up a bit and was borderline neutral. The Rydex ratios are still OK but the Ursa and Arktos levels remain weak and not close to levels seen at important trading lows. The breadth oscillator and the volume oscillator are neutral having completely relieved their recent oversold condition. The 3-day oscillator is neutral but a strong day today could push it up towards the important +600 level. The McClellan oscillator is neutral and close to zero. The 10-day and open 10-day Arms have eased. They are still slightly oversold but are close to neutral. The 5-day Arms is neutral and the 21-day Arms is slightly oversold and positive. The daily range oscillators are neutral. The daily trend oscillators are negative but also improving. The price pattern yesterday left a lot to be desired. It is rarely healthy to see early strength give way to late weakness but that is what we saw yesterday with the averages closing about mid range or worse. The poor pattern on the NASDAQ left it very vulnerable. The last time we saw a pattern like yesterday where we had a gap higher opening and a close near the low was on February 14. The following day the NDX gapped lower and left a very bearish island reversal pattern in place. This can be avoided today if it rallies so we will be watching this closely over the next couple of days. Most of the momentum indicators are back to neutral having corrected the deep oversold condition seen in near February 23 with the exception of the Arms which are still a little oversold. This could be reversed as early as today given the take away figure. The rally yesterday saw a sharp drop in the CBOE put to call ratio similar to what we saw early last week and near the same price levels. The beginning of sustainable rallies are usually met with a degree of skepticism especially after the extent of the recent decline we have just seen in the S&P and NASDAQ. The drop in the put to call ratio while not excessive does reflect a still very complacent attitude on the part of the usually wrong options traders as they are showing that they are still afraid of missing a rally and this along with the still low levels of assets in both the Ursa and Arktos funds continues to reflect a degree of complacency not usually associated with the early stages of a medium-term rally. Short-term I remain neutral and expect to see a continuation of the trading range now in progress. Medium-term I am still of the view that the market is close to completing a solid low that will ultimately lead to a sustainable multi month bear market rally. However, I do not think that process is complete but that we are close enough to it to remain neutral and not bearish. Long-term I am bearish. The bonds short-term should remain within their trading range a while longer. The trading range may resolve in a modest new post January 2000 new high but I would view that as the finishing touches of a topping process. I am neutral short-term and bearish medium-term. The rally on the XAU looks corrective and as such it is likely that wave 5 from February 15 is not yet underway. However, a move above the February 27 peak is still expected once the correction runs its course, no matter what course it takes and I remain 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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