DAILY TECHNICAL MARKET COMMENT

By: Larry Katz

March 14, 2001

*These are preliminary numbers and will be adjusted tomorrow

The DJIA gained 82 points and the S&P added 17 points. Volume expanded over Monday coming in at 1.35 billion shares. The A/D line lost 400 units. The new highs eased but so too did the new lows. The Russell 2000 gained 3.86 points. It traced out a small reversal pattern and closed on its high of the day. The short-term is neutral but oversold and a rally could occur. The medium-term remains negative. The Value-line gained 7.81 points. It too traced out a small reversal and closed on its high of the day. The short-term is neutral but oversold so a rally is likely. The medium-term is negative but only slightly so. The NASDAQ Composite gained 91 points and the NASDAQ 100 gained 109 points. They closed on their highs of the day. I am moving to bullish on the short term. I am also moving to bullish in the medium-term but with the idea that I could be a bit early. The DJTA lost 91 points. The short-term is neutral but weak. The medium-term is bearish. The DJUA and UTY closed down sharply. They are negative in all time frames.

The S&P can be counted as having completed five waves down on the hourly chart from last Thursday’s high. My current view is that this low has completed wave .5 of iii from the January 31 high and that wave iv is getting underway. The alternate count on the hourly chart allows that the late rally yesterday was a small fourth wave from last week with a modest new low below yesterday’s low needed to complete the pattern. A move today above Tuesday’s high of 1197.83 would turn the daily chart positive and confirm the pattern as complete. The alternate daily chart count has the decline labeled as wave v and as such the entire post January decline as over. Under this count the February 27-March 1 decline would be counted as wave .5 of iii. The hourly chart shows that decline to be best counted as a corrective pattern so this remains my alternate count and as such I would expect to see a modest new low once wave iv runs its course. Since wave ii was a simple pattern and also short in duration we should look for wave iv to be both complex and take up some time. The hourly chart of the DJIA from last week can be counted as a five-wave pattern into yesterday’s low. A move today above Tuesday’s high would confirm that pattern as complete. That level is 10,293.08. Where this five fits within the bigger picture is still not clear. So we will sit on that for a few days but it does allow for a rally to get underway and that we should expect. The NASDAQ 100 moved above Monday high locking in the decline from last Tuesday as a complete wave on the daily chart. The hourly chart can be counted as a five and this decline can also be counted as wave 5 from January 24. The alternate count still allows for the possibility that the NDX has only finished wave 3 from January 24 just like the S&P and that would suggest that the current rally is only wave iv from January 24. However, the minimum requirements from an Elliott perspective are in place for the completion of the post January decline and the NDX is in its best position to rally, again from an Elliott perspective since early January. There is one other possibility that needs to be at least presented and that is the potential that the decline from last Thursday was only a third wave from February 26 and not a fifth wave from either January 24 or January 31. A move above 1837.98 would eliminate that count as that is the low of wave 1 but it is a possibility. This is also the .383 retracement of the decline from last week so it is doubly important. This would allow for a number of 4’s and 5’s left to be unwound as the post February 26 decline would most likely be a third of a third from January. This is not my preferred count but it is possible nonetheless. Support; S&P; 1186-1187, 1180-1181, 1160-1165, DJIA; 10,180-10,200, 10,100, NDX; 1748-1750, 1720, 1620-1628. Resistance: S&P; 1620-1628, DJIA; 10,397-10,404, 10,573-10,586, NDX; 1814-1817, 1889-1900.   

The DJIA and the S&P traced out positive reversal pattern and closed on their highs of the day. They did so on expanding volume adding some weight to the reversal in price. One thing that to me was important was the intra day trading. We saw a lot of volatility. This was not evident in the daily range but was very evident in the daily price swings as we had a number of direction changes from up to down and back again through the first half of the session. This is a sign of accumulation especially since it occurred on expanding volume and a strong close. The NASDAQ averages also closed strong and on their highs. Moreover, neither moved below yesterday’s low, which is also a positive divergence.  Breadth was negative but did come back on the close from over 2 to 1 negative to only slightly negative. The new highs eased a bit but more importantly so did the new lows. This was important since the DJIA, S&P and the NYSE Composite all moved below Monday’s low.

The CBOE put to call ratio moved higher and ended very close to 1.00. The OEX ratio was also higher but only high neutral. The Rydex ratios are bullish. The breadth and volume oscillators tuned up slightly. They are close to oversold and also close to locking in bullish divergences. The 3-day oscillator is also oversold but did turn up and could support a bit more on the upside. The McClellan oscillator is oversold and also diverging from its February 23 level. The 10-day and open 10-day Arms are oversold and positive. The 5-day Arms is extremely oversold. The 21-day Arms is oversold but the new 10-Arms is on a sell signal. The daily range oscillators are turning up from oversold. The daily trend oscillators are slightly negative but also showing bullish divergences.

For the past several weeks I have been of he view that the market was in the process of completing a solid medium-term low. There were, however a number of missing ingredients that in my view needed to be seen before that low was in place. A lot of those have come home to roost over the past few days that lead me to believe that if we are not there yet we are most likely very close. I was impressed by a number of developments yesterday. The most obvious was the reversal pattern on the averages accompanied by an expansion in volume. This latter development served to confirm price and that was important. However obvious this was it was nonetheless important as yesterday showed that the market could indeed hold up to a slew of selling. We saw that on an intra day basis as the DJIA and the S&P moved twice from positive to negative breaking below Monday’s low but both times able to fight back. We are also seeing more evidence of a capitulation or give up. Not only from the expanding volume but also from the sharp spike in the CBOE put to call ratio, which yesterday moved to its highest one day reading since October 18 and the first time we saw back to back readings over .90 since mid December. Moreover, on Monday the Rydex ratio reached its most bullish level since late 1999. We are also seeing a number of bearish articles in the business papers with pictures of bears and some big ones at that peppering these publications. Flash back to last year at this time when that famous national daily publication was frothing the day the day the NASDAQ broke above 5000 with articles on how traders are seeking out the hot stocks that will carry the NASDAQ to 6000. It may be just a coincidence that that day was the exact high of the NASDAQ. Before I get too carried away here let me set the record straight. I do not believe that the bear market is over from that aspect my expectations have not changed but we are in my view at o very close to a very good medium-term low that will set the stage for a solid and sustainable rally that could carry on for several months. Are we completely out of the woods? Of course not but suffice it to say that from here the downside risks look minimal and the risk reward ratio is for the first time since last May favorable. I am moving from neutral to bullish on the short-term for the DJIA, S&P and the NASDAQ. There is still some risk medium-term. A deep test or even a marginal new lows in some of the averages in the next few weeks is not out of the question and in some expected. However, while recognizing that we may be a bit early I am going to move to bullish from neutral on the S&P and the NASDAQ while maintaining my neutral view on the DJIA. Long-term I remain bearish. There is no change in bonds. I am neutral short-term and bearish medium-term. The XAU moved to initial support levels near the .383 retracement of the rally from February 13. I am viewing the current decline as either a fourth wave from October or as a second wave from February 15. It does not look complete so further corrective action is expected. I am neutral short-term and bullish both medium and long-term.    

We bought a 50% position in the QQQ’s at 43.85 per the mid morning hotline. Place a stop on this position at 41.40. They closed at 44.45. WE sold our 20% position in URSA and bought a 20% position in the Rydex OTC fund. We are now holding a 20% OTC and 40% precious metals position. The morning hotline will be on at 7:15 pacific time Wednesday.