DAILY TECHNICAL MARKET COMMENT

By: Larry Katz

March 29, 2001

*These are preliminary numbers and will be adjusted tomorrow

The DJIA lost 162 points and the S&P gave back nearly 30 points. Volume was close to Tuesday’s level at 1.3 billion shares. The A/D line lost 900 units. The new highs eased and the new lows expanded. The Russell 2000 lost 10.68 points and closed on its low. The short-term is neutral but is close to going back to bearish. The medium-term is neutral but also close to moving back to negative. The Value-line lost 27.37 points. It closed near its low. The short-term is neutral but close to turning back down. The medium-term is neutral but also close to turning back down. The NASDAQ Composite lost 118 points and the NASDAQ 100 lost 133 points. They closed near the low of he day and very close to last weeks low. The short-term is neutral but close to reversing. The medium-term is also neutral but also close to reversing. The DJTA lost 37 points. The short-term is bullish but needs to hold now. The medium-term is neutral but is very close to turning. The DJUA and UT closed lower but only modestly so and closed well off the low of the day. The short-term is neutral. The medium and long-term is negative.

The S&P moved below Tuesday’s low confirming the rally from last weeks low as a three-wave pattern on the hourly chart. Tuesday’s peak stopped right near a 50% retracement of the decline from February 27, a decline that can be counted as a third wave from January 31. The rally also stopped with in two points of the fourth wave of previous degree. The 50% mark is about as far as a fourth wave should travel so if indeed the rally is a fourth wave we should not move above Tuesday’s high. As long as the S&P remains below Tuesday’s high it will be possible to count the rally as part of a fourth wave. A move above that high would argue that the rally was most likely correcting the entire post January decline. However, since the initial rally is a clear three argues strongly that a new impulse move from last weeks low is not underway. The DJIA did not move below Tuesday’s low keeping the daily chart somewhat positive from last Thursday’s low. The hourly chart from last Thursday into Tuesday can be counted as a five so we have to respect it as such but that five has not been confirmed as a five. A move today below Wednesday’s low of 9695 would do it but until that occurs the five could develop into a corrective pattern. However, the five-wave rally does suggest the strong likelihood that Tuesday’s peak will be exceeded. I am counting the rally from last week on the DJIA as a b” wave from March 8. The NDX failure to move above last weeks peak has kept open the possibility that the decline from January 24 was not over and that leaves open the potential for a couple of 4’s and 5’s to finish the job. So far the lows have held  and that leaves open the possibility that what we saw yesterday as a “b” wave of a flat from last weeks low. Right now the NDX is in no mans land holding between last weeks low and high although it is clearly a lot closer to the low. The wave count that did allow for the possibility that last weeks low completed a fifth wave diagonal triangle from March 6 is difficult to support as the NDX is surely not performing as it should if indeed a diagonal triangle was complete. The bond market this week is a good example of post diagonal triangle behavior. This seems to put the odds in favor of the idea that there is still more to go in the post January and post September decline. Support: S&P; 1140-1143, 1118-1122, DJIA; 9620-9630, 9425-9440, NDX; 1582-1600, 1540-1550. Resistance: S&P; 1168-1170, 1182, 1199-1202, DJIA; 9860-9872, 9998, 10,190-10,210, NDX; 1655-1659, 1694-1700, 1755.

After three days of strong gains the market closed don and down sharply. The DJIA held up a lot better than the S&P and closed well off its mid session low. The S&P closed off its low but not by very much while small cap averages, which lagged badly on Tuesday, gave back all of the weeks early gains. The NASDAQ averages were hit particularly hard with the NDX less than 20 points from last weeks low.  This is the area that I had thought would hold up better but that so far does not look to be the case. Volume was about in line with Tuesday’s total and that did confirm price. Breadth was negative but not excessively so. The contraction in new highs is expected on a down day but we did get a nice expansion in the new lows confirming price.  

The CBOE put to call ratio moved up nicely yesterday and was close to bullish levels. The OEX ratio also moved up and was quite positive. The breadth and volume oscillators moved higher and are back to neutral. The 3-day oscillator moved lower. It did reach the +600 level yesterday and that does suggest the strong likelihood of a move above Tuesday’s high. The McClellan oscillator is neutral but still below zero. The 10-day and open10-day arms moved lower and are no longer oversold. The five-day Arms is overbought and bearish. The 21-day Arms is oversold and bullish. The new 10-day Arms is neutral. The daily range oscillators are neutral but weak. The daily trend oscillators are neutral but close to turning up on the DJIA and the S&P. They are positive on the NASDAQ.

While the averages were able to bounce back from the lows most of that was confined to the DJIA while most of the averages showed little if any bounce. Several weeks ago I wrote about the news and as long as the market continued to react poorly to negative news and poorly to positive news that would be a strong indication that the market was still bearish. Well yesterday we saw more of that especially in the NASDAQ as a couple of key stocks got pummeled on negative news. In the markets hey day news like that would have affected that particular stock or maybe the group but the market itself would have shrugged off the news early and just kept on going. That is a key difference between the real thing and just a good rally. Obviously the bad news is not yet fully priced into the current market. The indicators are giving off short- term conflicting signals. I did like the fact that the CBOE put to call ratio moved up into the decline. Also we still have that +600 reading from the 3-day oscillator on Tuesday. It doesn’t work all the time but it works often enough to respect it. On the other hand, the breadth and volume oscillators have completely relieved their oversold condition and the McClellan oscillator turned back down from below zero. The latter is a particularly negative pattern. The 10-day and open 10-day Arms have moved back to neutral. It is high neutral, but the open 10 incidentally is exactly where I was on March 8 just as the DJIA was entering a two-week 1700 point drop. In the meantime the five-day Arms is overbought and very negative. On a short-term basis it is not clear as to whether the rally from last week is over or we have more to go. The indicators and the wave structure can support a move in either direction so for now the best place to be is neutral. On a medium-term basis well that’s another story. There was some further improvement from Investors Intelligence with the bulls dropping below 50% for the first time in 21 weeks and we also saw a nice rise in the bears to 38%. That is the highest since November 1999. This indicator is moving in the right direction but still needs a lot more. There has been 9 declines on the S&P from 1970 of 15% or more not including the current one (for a detailed explanation go to the web site at www.marketsummaryandforecast.com). On not one of those occasions did the S&P make its price low commensurate with a momentum low not once. I used the McClellan oscillator for this study. Last week the McClellan oscillator confirmed the new low in price. Even if that was the momentum low fro this decline, and there is no conformation of that currently, history strongly suggests that lower lows are to be expected once this rally runs its course and I remain neutral on the short-term as well. Long-term I am bearish. Bonds are oversold on a very short-term basis and could bounce at anytime. However, they remain in the early stages of a post diagonal triangle thrust with lower prices expected. I am bearish both short and medium-term. The XAU took a step further in confirming the rally from October of last year as a three-wave pattern. I am approaching the decline from February 27 as a potential  “b” wave from October but one that is not complete. I am neutral in all time frames.

Stock index futures traders are flat. Stand aside for the morning. QQQ traders are flat. Cancel all outstanding instructions and stand aside. 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.