DAILY TECHNICAL MARKET COMMENT

By: Larry Katz

March 15, 2001

*These are preliminary numbers and will be adjusted tomorrow

The DJIA lost 317 points and the S&P lost 31 points. Volume was about in line with what we saw Tuesday at 1.36 billion shares. The A/D line lost over 1600 units. The new highs contracted a lot and the new lows expanded a lot. The Russell 2000 lost 8.57 points. I am going to stay neutral short-term we are just too oversold. Medium-term I remain bearish. The Value-line lost 23.77 points. Although there is still likely more downside the short-term is very, very oversold and I am going to stay neutral. Medium-term I remain bearish. The NASDAQ Composite lost 42 points and the NASDAQ 100 lost 44 points. They closed well off the low of the day and about mid range and also held above Monday’s low.  I am going to move back to neutral short-term but remain bullish medium-term. The DJTA lost 89 points. The short-term is neutral and the medium-term remains bearish and looks a good deal lower. The DJUA and UTY closed lower and near its low. It is negative in all time frames.

The S&P failed to move above Monday’s high, which would have confirmed the decline from last weeks late high as a completed wave on the daily chart. That allowed for the pattern to extend, which is exactly what it did. The decline yesterday may be counted as all or most of wave 5 from last weeks high. However, until we get Conformation from the daily chart the pattern could very well extend further. I am still of the view that we are close to completing this portion of the decline and I am still counting the decline from last week as wave .5 of iii from January 31. Much more weakness though would severely question this count so if we are correct we should begin to make a stand soon. The DJIA hourly chart from last week may still b counted as a nearly completed five-wave decline on the hourly chart. In fact, at yesterday’s low it is again possible to count the pattern as complete. If correct we need to begin to ally for real. A break of yesterday’s low would suggest that either wave 5 was extending or that the DJIA was still within wave 3 from last week. There are still a number of possibilities regarding the current decline but the field has been narrowed considerably and perhaps by weeks end even more. I will discuss this in more detail this coming weekend. The NASDAQ 100 managed to hold Monday’s low. However the rally from Monday’s low was a three wave pattern and an in fact an almost perfect flat. Moreover, at yesterday’s high it stopped just shy of a .383 retracement of the decline from last weeks peak and just below the critical 1814 level discussed yesterday. Yesterday I talked about an alternate wave count that would allow for the possibility that the decline into Monday was not wave v from January 24 or even wave .5 of iii but wave .3 from February 26. This has become more of a reality and until we get above that resistance it has to be respected. If we do move below Monday’s low it will most likely be wave 5 from February 26 and that post February 26 decline would best be counted as wave 3 of .3 from January 24. We would still be in a position to rally in a fourth wave but would then need a couple of 4’s and 5’s to complete the pattern from January. Support: S&P: 1148=1152, 1110-1115, DJIA; 9740, 9660, 8960-9010, NDX; 170-1710, 1610-1630. Resistance: S&P; 1180-1182, 1197-1200, DJIA; 10,130-10,144, 10,260-10,275, NDX; 1814-1817, 1889-1900.

The market failed to show any follow-through to Tuesday’s reversal and sold off sharply. We did get a little bounce into the close but it was only a token bounce and was quite feeble with the DJIA and the S&P closing not too far off their lows of the day. However, the NASDAQ averages did hold above Monday’s low and closed a lot better than the listed averages and closer to the middle o the days range. Volume remained high keeping pace with Tuesday’s level suggesting that sellers are displaying a little more urgency. Breadth was quite lopsided and was nearly as weak it was on Monday. The new highs are easing as they should but frankly are still too high considering how weak the averages are. The new lows expanded again confirming the new price lows.   

The CBOE put to call ratio was once again very high and bullish. The OEX ratio was also quite high and also bullish but the 10-day moving average remains negative. The Rydex ratio is bullish. The breadth oscillator is close to oversold and the volume oscillator is oversold. Both are also holding above the February low albeit only slightly so. The 3-day oscillator moved lower and below Monday’s low. It is very oversold. The McClellan oscillator moved lower and is also very oversold. The 10-day and open 10-day Arms moved higher and are very oversold. The 5-day and 21-day Arms are also oversold with the 5-day at very extreme levels. The new 10-Arms is neutral and remains on a sell signal. The daily range oscillators are oversold but also confirming price. The daily trend oscillators are negative but showing potential divergences.

 The action of the DJIA and the S&P yesterday was quite disappointing at least as far as the DJIA and the S&P are concerned. The market is pushing my medium-term bullish resolve to the limit only one day after turning bullish but nobody said it was going to be easy. The final stages of the bottoming process is usually not easy and this time is no different. Yes I still am of the view that we are in that phase now but the process could very well drag on a while longer. In fact I am expecting that it will. We are seeing more and more evidence of capitulation and the press both print and video are turning more and more bearish with articles on a daily basis embracing the bear. This is not to ay that it cannot get worse it most certainly can but it is also the sort of thing one would very well expect to see closer to bottoms. We are also seeing evidence that the sectors and stocks that held up while the tech debacle was going on last fall and into January are beginning to crack. Thus the safe haven for most is giving way as it usually does towards the end of the decline. We saw that yesterday with the DJIA breaking below 10,000 on a closing basis for the first time since October and weakness in small cap indexes like the Value-line while tech stocks as measured by the NASDAQ averages fared far better. Sentiment indicators are taking on a very bullish posture with the CBOE put to call ratio for the third day in a row at very bullish levels and even the OEX ratio at bullish extremes. Some of this could be due to triple witching this week but clearly not all. We are also seeing very positive readings from the Rydex ratio and even some improvement in the asset levels in Ursa and Arktos although more in this area would be better, One disappointing indicator is the Investors Intelligence survey. We did get a drop in bulls but it was still over 50% but more importantly we also got a drop in bears to 32.3% from 34%. This needs work and is not good. We are getting mixed signals from the momentum indicators. The breadth and volume oscillators are oversold but holding above the February 23 low. The McClellan oscillator has moved below its respective low while the 3-day oscillator has moved below Monday’s low. The latter is very oversold and could support a rally at anytime but has also reached levels that imply lower prices. The McClellan oscillator is in a similar position as it has moved to new lows This could support a rally but is also low enough to suggests that a final price low is not in as momentum lows of this degree rarely occur commensurate with price but in advance. This does seem to fit in with my Elliott wave counts on the S&P suggesting that the current decline is only completing wave 3 from January and following a wave 4 rally we should see one more new low to complete the pattern. Yesterday I moved to bullish on the S&P and the NDX for both the short and medium-term with the caveat that “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 “. The short-term has become a little dicey and I am moving back to neutral on the S&P and the NDX. My medium-term view has not changed and I am still of the opinion that we are close to a good low that could lead to a solid and sustainable rally and I remain bullish on the S&P and the NDX. However, it is imperative that the market begin to rally soon or that positive picture could turn extremely negative and an acceleration of the current decline will become a very real possibility. Long-term I remain bearish. The bonds came within a tick of the January 3 peak before selling off a bit. The rally is either a “b” wave of a triangle or a fifth wave diagonal triangle from September that is nearly complete. I am neutral short-term and remain bearish medium-term. The XAU is either in wave 2 from February 15 or wave 4 from October. The correction is not complete as yet so expect more sideways to down over the near-term. I am neutral short-term and bullish medium an long-term.

We are holding a 50% position in the QQQ’s from 43.85, they closed yesterday at 43.75. Keep your stop at 39.70. Rydex switchers are holding a 40% Precious Metals and 20% OTC position. Make sure to call the Noon pacific hotline for any changes. The morning hotline will be on at 7:15 AM Pacific time.