DAILY TECHNICAL MARKET COMMENT

By: Larry Katz

March 21, 2001

*These are preliminary numbers and will be adjusted tomorrow

The DJIA lost 238 points and the S&P gave up over 28 points. Volume expanded on the day reaching 1.23 billion shares. The A/D line lost 400 units. The new highs expanded a bit and the new lows eased. The Russell 2000 lost 6.79 points. It traced out a reversal pattern and closed on its low but did not break Monday’s low. The short-term is neutral and still oversold. The medium-term is negative.  The Value-line lost 18.42 points and closed on its low of the day. It too traced out a negative reversal pattern and like the RUT did not break Monday’s low. The short-term is neutral and remains oversold. The medium-term is negative. The NASDAQ Composite lost 94 points and the NASDAQ 100 lost 116 points. Both closed on their lows of the day and at new lows. The short-term is neutral but weak. The medium-term is neutral but also weak. The DJTA lost around 6 points. The short-term is neutral. The medium-term is negative. The DJUA and UTY were about flat but closed well off their highs and close to their session low. They remain negative in all time frames.

The S&P moved above Monday’s high locking in the decline from last Thursday as a completed wave on the daily chart and most likely confirming the decline from early March as a completed wave as well. The preferred count has the post March decline as wave ..3 of .3 of iii from January 31. The decline yesterday may be a “b” wave of an irregular from Monday but may also be wave ..5 of .3 of iii from January and at this point that is my preferred count. There are two alternate counts. The first is bullish and allows for the possibility that we are in wave v from January. However, under that count the decline from March would have to be counted as a fifth wave and even though it was   a fifth wave of a third wave it had more of the characteristics of a third wave (see the 3-20 letter). The other count and one that has a very real possibility is that the S&P is in the very early stages of a third of a third acceleration. The DJIA moved above Monday’s high confirming the decline from March 8 as a completed wave on the daily chart. The DJIA moved below last Monday’s low indicating a new wave to the downside is in progress. This decline could, like the S&P, be a “b” wave of an irregular from Monday. The other possibility is that it is a fifth wave from February or the beginning of a third wave from early March. However, the weekly chart from early March has not sub divided and that confirms that the decline yesterday is part of the post March pattern. The NDX is in a similar position as the S&P as it relates to yesterday’s action. However, it is a lot easier to count the decline as a fifth wave from January 24 (see chart in yesterday’s report).  The alternate count is that the decline from February 26 was only wave ..3 of .3 of iii like the S&P and that the current decline is only finishing up wave .3 of iii leaving a couple of 4’s and 5’s to finish up the pattern. Support: S&P 1120-1122, 1100-1105, DJIA; 9600-9620, 8950-9000, NDX 1600-1610, 1540-1550. Resistance; 1156-1157, 1165-1166, 1192-1194, DJIA; 9830-9835, 9903-9913, 10,200-10,220, NDX; 1665-1668, 1698-1700, 1760-1770.

Most all of the important market averages tracing out negative reversal patterns. The also closed on or right near the low of the day with most of the selling occurring in the last hour. The DJIA, S&P NYSE Composite and the NASDAQ averages also traced out negative outside days (higher high, lower low and lower close), which is a particularly negative pattern. In addition, the reversal pattern was accompanied by a modest increase in trading volume, which served to confirm the negative price pattern. Breadth was negative but not excessively so. However breadth does tend to lag on reversal days. This could also be the case with the contraction in the new lows.

The CBOE put to call ratio moved higher but only marginally so and was still quite negative. The OEX ratio also moved higher but was also negative. The breadth and volume oscillators moved sharply lower. They are oversold, and in the case of the volume oscillator extremely so, but they also confirmed price by moving to a new low. The 3-day oscillator moved lower but is only neutral and showing a potential bullish divergence. The McClellan oscillator is oversold but also diverging at least so far. The 10-day and open 10-day Arms moved higher and are extremely oversold. The 5-day Arms and the 21-day Arms are also extremely oversold. The new 10-Arms is only neutral and not close to positive. The daily range oscillators are oversold and are also showing minor bullish divergences. The daily trend oscillators are negative.

The market failed and failed miserably yesterday leaving very negative price patterns in its wake. Yesterday I stated that “there are a number of factors that lead me to believe that it is not the beginning of anything sustainable to the upside even on a short-term basis.” That assessment was obviously correct as we saw new print and closing lows on the DJIA, S&P and the NASDAQ averages. So, where does yesterday’s performance leave us both on a short and medium-term basis?. We remain oversold and in some instances such as the Arms indexes very oversold.  However, the picture other than the Arms is mixed. The McClellan oscillator is showing a potential bullish divergence as it is well above Friday’s low with most of the averages lower. A similar pattern is in place on the 3-day oscillator and some range oscillators like 13-day RSI are also showing potential bullish divergences. This is consistent with fifth waves, which basis the S&P and NASDAQ is a possibility. However, the breadth and volume oscillators have moved to new lows confirming price so the potential divergences are not unanimous. Moreover, at this point anyway they are still just that, potential divergences and until they are confirmed they will remain potential divergences. Short-term sentiment indicators are mostly positive. However, the CBOE put to call ratio the past two days was very low. Yesterday I mentioned that this was very troubling to me on the very short-term especially after what the market had been through only last week. We saw more of that yesterday and this remains a big problem. Frankly the market is at a very critical juncture and the next several days are in my view very important but today could be the crucial day.  The wave structure and the indicators continue to point to the possibility that the averages are in the latter stages of the post January decline and in the process of completing a bottom of medium-term degree. However, it is equally possible that the market is about to enter an acceleration phase to the downside. I am still favoring the idea that the market is in the process of putting in a medium-term bottom but even in the best-case scenario that process is not complete and the road could still be quite bumpy and volatile.  I am going to remain neutral on both the short and medium-term while long-term I am still quite bearish. The bonds rallied late in the session on weakness in equities. The rising wedge or diagonal triangle is still in play but may not yet be complete. However, this is a terminal pattern and I remain bearish for both the short and medium-term. The XAU is holding but only slightly so. The rally from Friday looks corrective on the hourly chart and a break of Friday’s low of 48.45 would be potentially very damaging to the daily chart.  Am neutral short and medium-term and moving to neutral on the long-term more as a precautionary move.  

QQQ and stock index futures traders are flat. Make sure to call the early morning hotline, which will be on at 7:15 AM pacific.  Rydex switchers we exited ½ of our Precious Metals position. We are now holding a 10% OTC position and 20% Precious Metals position. Make sure to call the Noon Pacific hotline for any changes.