DAILY TECHNICAL MARKET COMMENT

By: Larry Katz

March 16, 2001

*These are preliminary numbers and will be adjusted tomorrow

The DJIA gained 58 points and the S&P added almost 8 points. Volume eased from Wednesday coming in at 1.22 billion shares. The A/D line added about 200 units. The new highs expanded and the new lows eased. The Russell 2000 lost 1.52 points. The short-term is neutral but getting very oversold. The medium-term is negative. The Value-line lost 1.48 points. The short-term is neutral but oversold so a rally may be close. The medium-term is bearish. The NASDAQ Composite lost 31 points and the NASDAQ 100 lost 47 points. They closed near the lows of the day and traced out minor reversal patterns. The short-term is neutral. I am bullish medium-term. The DJTA gained 22 points. The short-term is neutral and oversold so we could be close to a rally. The medium-term is negative. The DJUA and UTY closed the session with solid gains. They are negative in all time frames but are oversold short-term so they could bounce a bit more.

The S&P moved right to initial resistance levels given yesterday near 1282. That is the .618 retracement of the decline from Tuesday. The hourly chart from last Thursday can be counted as a five-wave pattern into Wednesday’s low. I am counting this decline as wave .5 of iii from January 31. However, the daily chart from last Thursday remain down and until we confirm the decline as complete on the daily chart an extension of the decline is quite possible. If the count is correct and we are in wave iv from January 31 then we need to confirm on the daily chart, and that would take a move back above yesterday’s high of 1282.04. This would also take the S&P above resistance and add to the conformation process. A failure would allow for he decline to extend but could also bring to the forefront the alternate count which has the decline from last weeks labeled as the beginning of wave 3 from January 31 and that would set up an acceleration of the current decline. In my view it is imperative that the S&P continue its rally and confirm that wave iv is indeed in progress. The hourly chart from last weeks high on the DJIA can be counted as a completed five-wave pattern at Wednesday’s low. This decline has not been confirmed as complete on the daily chart. A move above yesterday’s high of 10,097 would do the trick. Until that occurs the decline may extend and given the pattern on the charts could enter a third wave acceleration on a break below Wednesday’s low of 9895. The NDX stopped right at the .383 retracement of last weeks decline and did so in a clean three-wave pattern. The late weakness took the NDX to within striking distance of Monday’s low. The decline from yesterday’s high could be a “b” wave of a flat but it is equally possible and more likely that yesterday’s rally was a fourth wave from February 26 and a move below Monday’s low near 1679 is expected. The decline from February would best be counted as the culmination of wave .3 of 3 from January 24 and that would leave a couple of 4’s and 5’s to unwind to complete the pattern from January 24. That of course is the best case, the worst case is that we are only just entering the third of a third now and the pattern actually begins to accelerate. This is not my preferred count but if the S&P confirms by moving below Wednesday’s low this could become a reality. We are at very important levels. Support: S&P 1163-1165, 1148-1150, 1100-1110, DJIA; 9950-9960, 9895, 9600-9640, NDX; 1660-1670, 1600-1624. Resistance: S&P; 1180-1182, 1197-1200, DJIA; 10,130-10,144, 10,260-10,275, NDX; 1814-1817, 1889-1900.

The market was mixed and looked like old times with the DJIA and the S&P moving higher while the NASDAQ averages closed lower. The DJIA and the S&P while closing higher nonetheless closed well off their early morning peaks and the NASDAQ averages closed near the low of the day. The rally was also accompanied by a slight easing in volume, which in my view is not very healthy. We saw what happened to the market the last two times it rallied on contracting volume. If the rally is to have any legs at all this needs to improve. We did see some positive participation signs with breadth on the plus side and an expansion in the new highs. The latter as OK but while breadth was positive it was nonetheless mediocre.

The CBOE put to call ratio was once again very bullish. The OEX ratio was lower and bearish. The Rydex ratios are also bullish. The breadth and volume oscillators remain at or close to oversold levels. They are also showing potentially bullish divergences. The 3-day oscillator moved up sharply yesterday from very oversold levels and is on a rally alert signal. The McClellan oscillator moved up a bit from deeply oversold levels but is still oversold. The 10-day and open 10-day Arms are very oversold and bullish. The 50-day and 21-day Arms are also very oversold. The new 10-Arms is still on a sell signal. The daily range oscillators are oversold. They are showing potential bullish divergences on the S&P and the NDX but have confirmed on the DJIA. The daily trend oscillators are negative but are also showing potential divergences.

There are two possible courses the market can take given the current technical picture and Elliott patterns The first and one I am favoring is that the market is in the process of completing a medium-term low that will lead to a very solid and sustainable advance lasting for several months. This rally I am expecting still needs to be viewed as being within the confines of an on going longer-term bear market but it will be quite solid. Under this scenario we should rally over the near-term to relieve the oversold condition somewwat and then my expectation would be for a deep est or marginal new low sometime in the next few weeks to a month to complete the wave structure and the bottoming process. Technically I see a lot of evidence supporting this view. Short-term sentiment measures are quite positive. The CBOE put to call ratio ahs been over .90 every day this week and on Tuesday was over 1.00. The Rydex ratios are also positive and reached their most bullish levels since late 1999. However, the asset levels in both Ursa and Arktos, while improving still need some work. On the momentum front we are very oversold on a number of indicators. The simple 10-day Arms is as oversold as it was in September of 1998 and the 5-day arms is as well. The McClellan oscillator is at levels that were seen last October but did confirm the most recent low. The usual pattern when the oscillator gets as oversold as it did Wednesday is for a good rally to unfold to relieve the oversold condition followed by a move to lower lows in price with the oscillator making a higher low. This could unfold in a few days to a few weeks but that is how it usually plays out. This also fits in well with the wave count, which looks to need one more move lower once wave iv runs its course. The other possibility and one that is quite real is that the averages are about to enter an acceleration phase of the current decline or in Elliott terms a third of a third meltdown is close at hand. This is not my preferred count but it is a very distinct possibility if the market does not begin to rally. A move on the S&P and DJIA below this weeks low could trigger this scenario if it occurs from current levels so I will be watching closely. Short-term I moved back to neutral yesterday across the board and main there.  Medium-term I am going to keep the bullish view in tact for the S&P and NASDAQ but as discussed above we could be switching back real soon so stay in touch. I am going to remain neutral on the DJIA. Long-term I am bearish. The bonds made a slight new high above the January peak and fell back. There may be a bit more to go but it looks like the rally from January 25 is close to over. I am moving to bearish on the short-term and remain bearish on the medium-term. The XAU moved below levels that would allow for the possibility that the decline was a fourth wave from October. That said we are either in a second wave from February or the rally from October is a three and not the beginning of a new bull market. The next few days look important from this perspective. I am staying neutral for the short-term. Medium and long-term I am still bullish but that could change as early as today.

We are holding a 50% long position in the QQQ’s from 43.85. They closed at 42.15. Buy another 50% position at 41.20 if that level is reached in the first 30 minutes of trading. Keep the stop on the entire position at 39.30. Rydex switchers are holding a 40% Precious Metals position and a 20% OTC position. Make sure to call the Noon pacific hotline for any changes. The morning hotline will be on at 7:15 pacific