DAILY TECHNICAL MARKET COMMENT

By: Larry Katz

April 2, 2001

*These are preliminary numbers and will be adjusted tomorrow

The DJIA gained 79 points Friday and the S&P added 22 points. Volume on the NYSE came in at 1.28 billion shares. The A/D line added 11 units. The new highs were about flat and the new lows eased a bit. The Russell 2000 gained 9 points. The short-term is neutral. The medium-term is neutral but close to turning back down. The Value-line gained 18 points. The short-term is neutral. The medium-term is neutral but close to turning back down. The NASDAQ Composite gained 20 points and the NASDSAQ 100 added 10 points. The short-term is neutral but in a position to rally. The medium-term is neutral but close to completing a bottom. The DJTA rallied modestly on Friday. The short-term is positive. The medium-term is neutral. The DJUA and UTY closed sharply higher. The short-term is neutral ands looks to be in a position to test the mid February high and important resistance. The medium-term is negative but improving and the long-term remains negative.

The decline on the S&P from Tuesday‘s high into Thursday’s low was confirmed as a corrective pattern on the hourly chart when the S&P moved above Thursday’s high. The rally from Thursday’s low is also looking corrective on the hourly chart at least at this time. This leaves the S&P with a number of possibilities over the very near-term. The first and most obvious is that the decline into Thursday was the “a” wave of a larger a-b-c pattern with the current rally wave “b” of the pattern. Lets go with this count and the idea that wave “b” is close to over which should be followed by a “c: wave decline. The other possibility is that the rally from Thursday’s low is the beginning of the next wave up from the March 22 low. Since the initial decline from the March 27 peak is a three it is nearly impossible to count the decline as the beginning of wave v from January 31. That said, since we are dealing with a possible and I want to emphasize possible fourth wave that leaves open only two possibilities. The first is that we are in the early stages of a fourth wave triangle from March 22. The latter is that wave iv is not complete and a modest move above the March 27 peak is coming. However, the level around the March 27 high is very important as it represents the 50% retracement of what can be counted as wave iii and also right near the fourth wave of previous degree. Thus anything more than a marginal breach of this level would invalidate the count and that would most likely indicate that the entire post January decline was complete. Unlike the S&P, the DJIA hourly chart can be counted as a five-wave pattern from March 22 to March 27. Like the S&P the decline from March 27 is corrective and has been confirmed as such by the daily chart. Also like the S&P the rally is looking corrective as well leaving open the possibility that the rally is a “b” wave from last weeks high. The NASDAQ 100 hourly chart from Tuesday is showing a very clear seven-wave pattern. There are a couple of possibilities on this average with the most likely being that a five-wave pattern was complete on Thursday with the NDX tracing out an irregular from Thursday’s low. Whether this decline completed all of the decline from last week or just the first wave of a larger pattern is not clear but as long as the daily chart remains down it will be possible to count Thursday’s low as the completion of wave 5 of iii from January 24. As long as the weekly chart remains down we have to allow for lower prices. The level for this week is 1751. Support: S&P; 1144.1145, 1130-1132, 1118-1122, DJIA; 9770-9778, 9630-9640, 9425-9437, NDX 1556-1558, 1540-1550, 1393-1406. Resistance: S&P; 1165-1167, 1182-1184, 1199-1202, DJIA, 9970-9980, 10,190-10,210, NDX; 1623=1625, 1672-1678, 1751.

Friday saw nearly all of the key market averages record solid gains. The DJIA actually lagged both the S&P and the NYSE Composite. They did not make it back to their highs seen early in the week and the S&P in particular is still a good deal away but they did manage to close near the high of the day. They also rallied on slightly expanding volume and very solid breadth. The new highs though did not expand and the new lows although easing a bit were still close to what they were on Thursday. The NASDAQ averages managed to close higher but lagged badly and closed well off their highs of day selling off a bit into the close.

The CBOIE put to call ratio eased a bit from Thursday and was high neutral. The OEX ratio moved higher and was very positive. The breadth and volume oscillators moved higher and are neutral. The 3-day oscillator is close to overbought. The McClellan oscillator moved higher and slightly above the zero line. The 10-day and open 10-day Arms moved lower. They are neutral. The 5-day Arms is overbought and negative and 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 slightly positive.

Friday was the last day of not only March but of the quarter. The end of month activity tends to cause some distortions but end of quarter causes a lot more distortions. The last couple of days taking on characteristics of an options expiration with a number of crosscurrents. We saw that on both Thursday and Friday as the intra-day volatility really picked up. This not only effects price but also a number of other areas including volume and breadth, which has a tendency to show a positive bias at end of month. It also has an effect on option activity and I have also seen it work its magic on the Rydex numbers. One thing is clear and that is the fact that whatever distortions that are created from end of quarter they tend to correct themselves as early as the next trading day.  While there very well could be distortions in the put to call ratios the fact is that at their current level they remain in decent shape as does the Rydex ratio and the short-term sentiment indicators suggest that at least for now the downside risk from here is not real high. However, the momentum indicators are not so hot. They are not bearish or most of them are not bearish but they have nearly across the board completely relieved the extreme oversold condition that was prevalent at the March 22 low. For example, both the 10-day and open 10-day Arms are now very close to where they were in early March while both the breadth and volume oscillators are back to fully neutral readings. The short-term wave structure is not conclusive but does not look to be in a position to support a move back to the March lows at this time, although I do fully expect that to occur. Short-term the indicators are beginning to weaken but I do not see a lot of risk and the possibility of a further move towards last weeks highs are possible so I am going to remain neutral. Medium-term the story remains the same. The picture continues to improve and it is very likely that the majority of the damage and bulk of the decline is behind us. This is especially the case in the NASDAQ. However, I do not think the bottom is in and there could still be one or two scary drops before we complete the pattern from January and September. At the same time, the position of the indicators are such that any new lows in the coming weeks should go unconfirmed and set up some positive divergences. Medium-term I remain neutral. Long-term I am still bearish. The bonds had a decent session on Friday and although closing well off their high they did nonetheless close higher and traced out a minor positive reversal. They are oversold so a continuation of the rally is possible over the very near-term. However, they remain negative on both a short and medium-term basis and any initial rally from these levels should fail. The XAU had a nice reversal day on Friday after making a new post February 27 low. The decline from February 27 may be a “b” wave from October but nothing is confirmed. I remain 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.