DAILY TECHNICAL MARKET COMMENT

By: Larry Katz

April 3, 2001

*These are preliminary numbers and will be adjusted tomorrow

The DJIA lost 100 points and the S&P gave up over 14 points. Volume on the NYSE was 1.19 billion shares. The A/D line lost 700 units.  The new high and new lows were not available. The Russell 2000 lost 10.77 points and closed on its low. The short-term is neutral. The medium-term is neutral but close to turning negative. The Value-line lost 23.78 points and also closed right near its low. The short-term is neutral but weakening. The medium-term is neutral but very close to turning negative. The NASDAQ Composite lost 57 points and the NASDAQ 100 lost 56 points. They both closed near the low of the day. The short-term is neutral. The medium-term is neutral but starting to weaken again. The DJTA lost 26 points. The short-term is positive but easing. The medium-term is neutral and weakening. The DJUA and UTY closed higher but well off their session peaks. The short-term is neutral. The medium-term is negative but improving. The long-term is bearish.

The S&P held above last Thursday’s low after failing just slightly above resistance and the .618 retracement of the decline from last Tuesday’s high into Thursday’s low. The rally on the hourly chart from Thursday was confirmed as a corrective advance. This rally is either the “a” wave of a larger a-b-c from last Thursday or a “b” wave from the March 27 high. If the former is correct a move back above yesterday’s high should be seen prior to a move below last week low of 1136.26. We came close yesterday at 1137.51 so if this is the correct count then we have little room for error. If the latter than the decline yesterday is part of a larger “c” wave from last week and a move below the 1136.26 low is in the cards. These are the two most likely counts but there are a number of other possibilities that will be addressed if these prove incorrect. The DJIA moved above last weeks high but the hourly chart from Thursday is clearly corrective and the rally was confirmed as complete on the daily chart when the DJIA moved below Friday’s low. This rally is either a “b” wave of an irregular from last Tuesday or of a possible triangle from last Tuesday. If the latter than the late drop yesterday was wave “c”. Since the DJIA is holding above last weeks late low of 9687.61 this is a possibility. a break of that low eliminates the triangle.  We are still dealing with a possible five-wave rally from March 22 to March 27 and that argues that the pattern from that high is a corrective one. However, if the DJIA moves above yesterday‘s high of 9992.53 before we have a triangle or it moves below the low of last week we are faced with a corrective pattern and that would likely indicate that last weeks potential five was not a five. The NDX moved well below last weeks low. In what is so far a three-wave pattern on the hourly chart from yesterday’s high. The decline into Friday’s low from the March 27 high was a seven wave- pattern.  As discussed in yesterday’s report it is possible to count a five as complete at least Thursday’s lo and the rally from there an irregular. If correct than the decline yesterday is part of a third wave from early last week. And since that decline is not a five, we should expect lower prices. The other possibility since we have corrective patterns down is that the decline from last week is unfolding as a diagonal triangle with yesterday’s decline all or most of the “c” wave of that pattern. In either case lower prices are expected but how we get there will be important. Support: S&P 1130-1132, 1118-1122, DJIA; 9630-9640, 9425-9437, NDX; 1450-1460, 1390-1400, 1322-1334. Resistance: S&P; 1149-1150, 1158-1160, 1182-1184, DJIA; 9816-9822, 9885-9896, 9990-10,000, NDX; 1530-1537, 1558-1564, 1600-1605.

The DJIA and the S&P traced out negative reversal patterns after an early rally attempt failed. Both averages traced out negative outside days (higher high, lower low) and although they did close off their lows they nonetheless closed poorly. Although the NYSE Composite did come close the DJIA was the only average to actually move above last weeks high. The S&P failed by over 1% and neither the value-line nor the Russell 2000, both good proxies for small cap stocks came close. The NASDAQ averages meanwhile moved to another in a series of new lows. Volume on the NYSE did contract but only by the slightest of margins. Breadth was negative but nothing excessive and was about in line with the averages.

The CBOE put to call ratio was about in line with Friday and was high neutral. The OEX ratio eased but was still bullish. The breadth and volume oscillators moved lower. They are neutral but weak. The 3-day oscillator is neutral and on a sell alert. The McClellan oscillator is neutral but back below zero. The 10-day and open 10-day Arms moved a bit higher. They are close to the very low end of oversold. The 5-day Arms is neutral and the 21-day Arms is oversold and positive. The new 10-day Arms is neutral. The daily range oscillators are neutral but weak. The daily trend oscillators are positive.

The DJIA made an unconfirmed new high yesterday as it was the only average to move above last weeks high. This set off a negative divergence that resulted in a negative reversal pattern from all of the important market averages. The DJIA, in spite of the reversal, remained the strongest of the averages as it lost a good deal less than the S&P and especially the NASDAQ. However, what was a big negative yesterday was the fact that the Value-line did not make it into positive territory even when the DJIA was at its highest level. The Value-line for the most part tends to follow the DJIA and when it deviates negatively the end results are usually a negative if only for the very short-term. The CBOE put to call ratio and the Rydex ratios are OK. They are not at bell ringing buy levels but are good enough to suggest that the downside risk from here is not huge, at least not yet. However, the momentum indicators did take a turn for the worse as they turned back down from a weak neutral position after having completely relieving the deep oversold condition that was in place at the March 22 low. I am still of the opinion that the lows of March 22 will be either sorely tested but more likely broken at least once on a higher momentum reading before we can even consider the possibility that a medium-term low is at hand. In a number of cases not one but two lower lows are needed with divergent behavior from the indicators before a bottom is complete. As I have mentioned over the past couple of weeks when the S&P has been down by over 15%, and that has occurred only 9 times prior to the current time frame in the last 30 years we have not seen a price lo commensurate with a momentum low. On March 22 all of the momentum indicators confirmed price. We are in a position to accomplish that over the next few weeks given the current position of the indicators. Short-term I am just not sure if the market is ready to just roll over and move to new lows immediately or perhaps set up for one more run at the recent high. In the case of the S&P I see the possibility of a near term trading range or in Elliott wave terms a possible triangle in development. I am going to remain neutral on the short-term.  Medium-term I fully expect new lows but also see this as a possible set up for a bottom to develop and I am going to remain neutral on the medium-term as well. Long-term I remain bearish. The bonds closed lower but did manage to hold last weeks low leaving open the possibility that yesterday’s decline was a b” wave from last Friday. A break of last weeks low of 103 16/32 basis the June contract would indicate that a third or “c” wave acceleration was in progress. Whether we rally or not the bonds remain negative both short and medium-term and lower prices are expected. The XAU reversed Friday’s not so hot reversal and closed down sharply. It is approaching the February 15 low. I am still going with the idea that the decline from February 27 is a “b” wave from October but a “b” wave 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.