DAILY TECHNICAL MARKET COMMENT

By: Larry Katz

March 13, 2001

*These are preliminary numbers and will be adjusted tomorrow

The DJIA lost 436 points and the S&P lost 53 points. Volume expanded over Friday reaching 1.23 billion shares. The A/D line lost 1700 units. The new highs were lower while the new lows expanded. The Russell 2000 lost 15.25 points and closed near the session low.  The short-term is neutral but still weak. The medium-term has turned bearish and a test of the December low is expected. The Value-line lost 39.09 points. It closed on its low of the day and also below its late February-March 1 double bottom. The short-term is very oversold so I will remain neutral. The medium-term has turned bearish and a move back towards the December low is expected. The NASDAQ Composite lost 129 points and the NASDAQ 100 lost 132 points with both closing near the low of the day. I am going to remain neutral on the short-term and medium-term. The DJTA  lost 81 points. The short-term is neutral but weak. The medium-term is bearish. The DJUA and UTY closed sharply lower and also on their low. The short-term is now confirmed as negative. The medium and long-term remain negative.

The S&P by breaking below the February 23 low has made the triangle count I have been using a difficult one. However, it has not totally been eliminated as it is possible that the activity last Wednesday and Thursday was a small “d” and “e” wave and the subsequent decline a post triangle thrust. It is not the best of looks but it is possible. The other possibility is that last weeks rally was some sort of failure on the daily chart and we are still in wave .5 of iii. The hourly chart from last Thursday’s peak can be counted as a completed or near completed five-wave pattern. However, it can also be counted as having completed only three-waves of a five-wave pattern and that in fact would give the pattern a better look. This should set the stage for a decent rally even if it is only wave iv from January. The DJIA broke decisively below 10,290, a level that had been holding as support going all the way back to last November (see the chart in yesterday’s letter). The DJIA also broke slightly below the .618 retracement of the rally from October 18 to November 6. In yesterday’s letter I discussed the possibility that the DJIA was in a triangle of some degree going back to November but possibly from October. The way it has come down following Thursday’s peak certainly supports the idea that Thursday’s peak did indeed complete a triangle. The hourly chart from Thursday can be counted as a five-wave pattern. It is possible that this decline is a “c” wave of a very complex pattern going all the way back to the November 6 peak. If this is the case we should begin to rally almost immediately. If not it will be likely that it is a bigger decline that could and should challenge the October low near 9650. The hourly chart from last weeks high on the NDX cannot yet be counted as a five. We need one but perhaps two small 4’s and 5’s to complete the pattern. This decline may very well be wave 5 from January 24 but as discussed yesterday it is also possible that the decline from last week’s high is only wave .5 of iii from January 24.The NDX did break below the 1720 level where last weeks decline would have been equal to wave 1 under that count. The break was not big but big enough to support the idea that we are completing a very extended third wave from January 24 leaving one small fourth and fifth wave to complete the post January decline. This however does set the stage for a decent rally to complete wave 4. Support: S&P; 1160-1165, 1145-1151, DJIA; 10,150-10,160, 9600-9650, NDX; 1620-1628, 1390-1440. Resistance: S&P; 1190-1195, 1210-1214, DJIA; 10,280, 10,350-10,360, 10,430-10,450, NDX; 1725-1729, 1807-1814.

They took no prisoners yesterday as every important market averages moved lower and sharply so. Even the utility stocks, which had been a safe haven on strong down days were hit hard and most all of the averages closed on or near the low of the day. The selling was accompanied by a modest increase in trading volume. It was enough to confirm price but still not close to levels that would indicate a full-fledged capitulation on the part of investors. Breadth was extremely negative with the A/D line over 3 to 1 negative and its single worst one day ratio of the year. The new highs while easing were nonetheless surprisingly strong given how weak the averages were. The new lows expanded sharply confirming the new closing lows at least as far as this decline is concerned.

The CBOE put to call ratio moved up sharply and was quite positive. The OEX ratio was higher but only neutral. The breadth and volume oscillators moved lower. The breadth oscillator is neutral while the volume oscillator is slightly oversold. The 3-day oscillator moved sharply lower. It is very oversold but it did move below the February low. The McClellan oscillator is back to slightly oversold levels but it as well as the breadth and volume oscillators are above their February low. The 10-day and open 10-day Arms moved higher and are back to oversold. The 5-day and 21-day Arms are oversold and bullish. The new 10-Arms is on a confirmed sell signal. The daily range oscillators are close to oversold but have confirmed the new lows on the S&P. The daily trend oscillators have turned back down and are negative.

Its finally official, the S&P has now lost over 20% from its March 24, 2000 closing high and all finally agree that it is in bear market territory. Of course this is something that our longer-term readers have known for over a year when this publication first turned bearish on the long-term in March of last year but it is nice to know that the whole investment world finally agrees. Actually I view the acceptance of this as a possible indication that my medium-term bottoming view is closer to reality. Remember, that old expression, “what everybody knows is not worth knowing’. This does not mean that we are at a bottom now. In fact, while I do think that we are getting closer to a good medium-term low I still do not think we are there. Keep in mind that the final phases of these types of declines can be very difficult and as I have stated before violent. I see enough evidence from a number of areas that point to the strong likelihood that a fairly decent rally is close to getting underway. We have a near completed pattern on the hourly charts from last weeks high. Short-term sentiment as measured by the CBOE put to call ratio as well as the Rydex ratios are positive or close to it. In addition a number of momentum indicators are oversold. We are also seeing potential bullish divergences from a number of these indicators as they are holding well above their February 23 low while price has moved well below where it was on February 23. However, they are still only potential divergences as they have not been confirmed. We also saw some signs of short-term climactic action yesterday. The one-day Arms reading was over 3.00 and the daily up to down volume ratio was over 10 to 1 negative. All of this suggests that a good short-term rally may be close at hand but there is still enough risk to remain neutral for the time being.  The medium-term picture is improving and we are getting a lot closer to a good medium-tem low. However, we are still not there and for now I remain neutral. Long-term I remain bearish but see the market as getting closer to a solid and sustainable rally. The bonds moved back to the top of their recent range but in spite of the huge weakness in equities could not break out. I remain neutral short-term and bearish long-term. There is no change in the XA. The short-term is neutral and a correction of the rally from February 15 is underway. The medium and long-term remain positive but we did hit important resistance last week, which needs to be overcome soon.

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.

The Chart below shows the possible triangle count on the S&P discussed in the Elliott wave section. It also shows the   count from the high of last Thursday