DAILY TECHNICAL MARKET COMMENT

By: Larry Katz

March 28, 2001

*These are preliminary numbers and will be adjusted tomorrow

The DJIA gained 260 points and the S&P added nearly 30 points. Volume expanded over Monday coming in at a decent 1.3 billion shares. The A/D line added 800 units. The new highs and the new lows expanded. The Russell 2000 gained 5.50 points. It did lag but also closed on its high. The short-term is neutral but looks higher. I am moving from bearish to neutral on the medium-term. The Value-line gained 14 points. it lagged as well but also closed near its high. The short-term is neutral but should be able to rally further. The medium-term is being upgraded to neutral from bearish. The NASDAQ Composite gained 53 points and the NASDAQ 100 added 58 points. The short-term is neutral but close to turning positive. The medium-term is improving but for now neutral. The DJTA gained 74 points. The short-term is turning bullish look for the rally to continue. The medium-term is being upgraded to neutral from bearish. The DJUA and UTY had another solid day and closed near the highs. The short-term remains neutral and the medium and long-term bearish.

The S&P moved slightly above the 50% retracement level of the decline from February 27, a decline that I was counting as a possible third wave from January. This has not eliminated the possibility that the rally is a fourth wave from January 31 but it is pushing it a lot. The hourly chart from last week is so far a very clean three-wave pattern with the third wave traveling just two points further than equality with the first wave. The fact that we are also right at important resistance and close to what can be counted as the fourth wave of previous degree suggests that the S&P is at an important juncture from an Elliott perspective. Much further strength today would likely eliminate the possibility that the rally from last week was part of the post January decline but would instead suggest it was related to the entire decline instead. If we get a five out of the pattern that would also increase the likelihood that last week did complete something more than I had originally anticipated. The DJIA hourly chart can be counted as a five from last weeks low. A move above 9998, however, would invalidate that count as that is the point where the third wave would be the shortest wave.  If that as to occur it could be one of two counts the first and most bullish is that a third wave was sub dividing and the rally was accelerating. The other is that the rally is corrective. At this point that remains my view that the rally is a “b” wave from the March high but a “b” wave that is not complete. The NDX moved below Monday’s low locking in the rally from Thursday as a completed wave on the daily chart and as a three on the hourly chart. The NDX has still not been able to move above last weeks high keeping the weekly chart down. A move above that level would confirm that the decline from January was a completed wave on the weekly chart. The NASDAQ Composite has already done so and that adds a lot of support to the idea that the NDX will do so as well but until we get conformation we have to just be patient. Support: S&P; 1159-1160, 1148-1151, 1118-1122, NDX; 1695-1698, 1648-1652, 1582-1600, DJIA; 9830-9836, 9750-9760, 9620-9630. Resistance: S&P 1183-1186, 1199-1202, DJIA 9998, 10,190-10,210, NDX; 1755, 1863-1870.

The market continued to push higher and had another very impressive session in terms of points gained. The DJIA has now rallied over 850 points in just over 3 sessions. The averages closed strong with a last hour rally moving most to their best levels of the day. The last hour strength remains a plus for the market on a short-term basis and suggests that the rally is not over. Volume did expand over Monday, confirming price but was still below what we saw Thursday. Breadth was OK, but again not even close to being on par with the averages. The new highs did expand confirming price but so did the new lows.

The CBOE put to call ratio moved up into the rally. It was borderline neutral. The OEX ratio also moved higher and was neutral. The breadth and volume oscillators moved higher. They have worked off nearly all of their oversold condition from last week. The 3-day oscillator is overbought but also moved above the +600 level, a level that in most cases signals that the rally has more to go. The McClellan oscillator is neutral and close to zero. The 10-day and open 10-day Arms moved lower. They are still oversold but not far from neutral, especially the open 10. The 5-day Arms is overbought and negative. The 21-day Arms is oversold and bullish. The new 10-day Arms is neutral. The daily range oscillators are neutral. The daily trend oscillators are neutral but also close to going positive. They have turned slightly positive on the NASDAQ.

The rally has carried further and frankly has been stronger in terms of points gained then I expected at this stage.  Yes we did get pretty stretched at last weeks low and a sharp bounce is not out of the question. However, this rally is beginning to look impulsive and could carry further than I had anticipated. I did like the fact that we saw the CBOE put to call ratio move up yesterday especially late in the day as the averages were rallying. They were not bullish and in fact far from it, but to see it move up into a strong rally is a plus nonetheless especially given the fact that they were so low on Monday and last Friday. On a very short-term basis the signals are mixed. On the one hand we do have what look like a fairly strong rally in place and given the short-term momentum it may be hard to kill on a dime. We also got a short-term bullish signal from the 3-day oscillator as it moved above the +600 level. A move above that level is fairly consistent with higher prices on a short-term basis. That does not mean we cannot move lower first but in most cases prices do tend to be higher than the day of the reading. The short-term wave structures are mixed with the S&P hourly chart so far corrective while the DJIA can be counted as a five. A modest pullback or correction of the rally could get underway at anytime, however, from the looks of things it does not look as though this rally is over and that any pullback should be followed by higher prices. Where this rally fits in the medium-term picture is a difficult question to answer. I had been of the view that any rally from last weeks low would be a corrective one and not the start of an important medium-term basis rally.  The strength of the rally sure does make me sit back and re think this view. And frankly it is very tempting to throw in the towel and say yes last week was it. In fact last week may very well have marked an important low but there are still a number of very good reasons for not expecting that this is the case. The most important in my view is the same reason I mentioned yesterday. And that is that at last weeks low all of the breadth and volume oscillators I follow confirmed the new low in price. Historically the market has rarely if ever found its absolute price low commensurate with readings on these indicators as oversold as the just were following a decline as big as the one we have just experienced. Could it be different this time? Of course it could but I do not like to bet against odds of that degree. The bottom line is that I fully expect to see a new low in price or at least a very deep test of last weeks low before a bottom of importance is complete. The rally short-term can very well carry on a bit more and given some of the indicators my expectation is that it will but given my medium-term view I am going to remain neutral on both the short and medium-term. Long-term at least for now I remain bearish. My view on the NASDAQ is more positive and would be reinforced if the NDX moves above last weeks high. Until that occurs I am going to remain neutral on both the short and medium-term but with a positive bias. The bonds left no doubt to the fact that a diagonal triangle was completed at least weeks high. They are beginning to get oversold especially on an hourly basis and could bounce at any time but the short and medium-term remain negative and lower prices are expected. The XAU broke below yesterday’s low confirming Monday’s break of last weeks low. I am going to remain neutral in all time frames.

Stock index futures traders are flat. Stand aside for the morning. QQQ traders are flat. For today the strategy is the same, take a 50% long position using a buy stop of 43.85 with a stop if elected of 39.44. Rydex switchers are holding a 20% Precious metals and 10% 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.