DAILY TECHNICAL MARKET COMMENT

By: Larry Katz

April 5, 2001

*These are preliminary numbers and will be adjusted tomorrow

The DJIA gained 29 points and the S&P lost 3 points on volume of 1.40 billion shares. The A/D line was about flat. The new highs expanded a bit and the new lows eased. The Russell 2000 lost 1.22 points. The short-term is negative but only slightly so. The medium-term is also negative. The Value-line lost 1.79 points. The short-term is slightly negative. The medium-term is negative. The NASDAQ Composite lost 34 points and the NASDAQ 100 lost 28 points. Both closed at new lows but did manage to close off their low of the day. I am going to stay neutral on both the short and medium-term but I do not think the decline is over. The DJTA gained 21 points. The short-term is neutral and the medium-term is negative. The DJUA and UTY closed lower. The short-term is neutral. The medium-term remains negative but is close to going neutral and the long-term is negative.

The S&P hourly chart from Monday is a bit more difficult to count as impulsive as it was following Tuesday’s close but not impossible. In any case, we are still dealing with a three-wave pattern from March 27 on both the daily and hourly chart. Since the S&P has not moved below the March 22 low it is very possible that the decline from March 27 is a “b” wave from March 22 of either a flat or a triangle. Right now there are just too many unanswered questions to come up with a solid and viable short-term count. The DJIA hourly chart from Monday can still be counted as a five at yesterday’s low. It is still possible that the decline from Monday is a “c” wave of an irregular from March 27. However, there are two strikes against that count. First, the DJIA moved well enough below the .618 retracement of the March 22-March 27 rally to question that count. Secondly, the decline from Monday was way out of proportion to the  “a” wave.  If the irregular is not correct than the rally from March 22 to Monday’s high is best counted as a three-wave corrective pattern. While it is possible to count the decline as a five into yesterday’s low it is equally possible to count the decline as a three and that leaves open the possibility, as is the case with the S&P that the decline is a “b” wave from the March 22 low. This potential ‘b” wave can be part of a flat or triangle. The fact that we do have a possible five on both averages does allow for a rally to get underway. The nature of any rally will likely be important to the short-term. A break of the March 22 low would not eliminate the possibility that the decline from Monday on the DJIA and March 27 on the S&P was a “b” wave as it is possible that the decline could be part of an irregular but it would tip the scale in favor of the idea that the next wave down was underway. The next day or three should be interesting. The NDX hourly chart from March 27 can be counted as a completed five at yesterday’s low. However, it is iust as likely that yesterday only completed the pattern from March 30 and that one more small fourth and fifth wave is needed to finish off the post March 27 pattern. A lot rests on the daily chart; which from March 27 is still negative and until that decline is confirmed as complete it is possible to see it extend. Given the position of the daily chart I am of the opinion that the decline from March 3 is a third wave from March 23 and any ally from here is best viewed as a fourth wave. Support: S&P 1080, 1040-1045, 1015-1022, DJIA; 8950-8970, 8200-8230, NDX, 1310-1320, 1260-1270. Resistance: S&P; 1120-1122, 1139-1142, DJIA; 9680-9690, 9755-9770, NDX; 1435, 1500-1508, 1597-1609.

The market closed mixed with the DJIA a bit higher and the S&P a bit lower but both would up closing near the middle of the days range. Breadth was of little help as it ended about unchanged. However, volume did expand on the day. We also saw an expansion in new highs and a contraction in the new lows. The latter is potentially important since the averages moved to new lows while the number of new lows did not confirm. The NASDAQ averages did manage to close off their lows but remain weak both on an absolute and relative basis.    

The CBOE put to call ratio moved lower and was neutral. The OEX ratio moved sharply lower and was bearish. The breadth and volume oscillators moved higher. They are neutral. The 3-day oscillator is neutral. The McClellan oscillator moved up a bit. It is low neutral but still below zero. The 10-day and open 10-day arms eased. They are oversold but the open 10 is borderline neutral. The five-day Arms is oversold and positive and the 21-day Arms is extremely oversold. The new 10-day Arms is neutral but weakening, The daily range oscillators are close to oversold. The daily trend oscillators are neutral. A rally today could turn them back up and a decline could turn them back down. They are negative on the NASDAQ averages.

The market, or at least the DJIA and to a lesser extent the S&P held up rather well yesterday as they survived numerous intra day selling squalls that at one point took the S&P to within 10 points of its March 22 intra day low. We also saw a lot of intra day volatility with both averages moving from negative to positive throughout the day. This pattern is often times a precursor to a change in trend especially when it occurs after a decline or rally has been in progress for a while. The fact that it also occurred in the vicinity of the high volume day of March 22 and it occurred on expanding volume adds some support to the pattern suggesting that a good short-term rally could begin at anytime. There are other indications that a rally may be at hand such as the fact that the new lows contracted yesterday in spite of lower prices in the averages. I was a little disappointed in the put to call ratios yesterday as they moved lower in spite of the selling, but they are still in good enough shape to support a rally. Same with the Rydex ratios as yesterday saw more assets in the Ursa fund than Nova. Whether the rally will have enough fire power to carry back towards the March 27 peak or not is another story. Some of the indicators and the wave structure do allow for a move back to those levels or maybe even slightly above them as the S&P may be in the process of carving out a trading range. Of course, a move below the March 22 low and all bets are off and actually a move much below yesterday’s low could harm the possibility of a decent rally unfolding. Is it worth switching to a buy signal to catch this potential rally? For the very aggressive short-term traders focusing on the correct instruments it may be worth a shot but for most it is not. Thus while I do expect that a good rally is at hand I am going to stay officially neutral on the short-term. Keep in mind that we are still in a bear market, and in bear markets short-term rallies end sooner than one expects. On a medium-term basis we may be getting closer to the end of the decline or at least the decline from the January peak. However, on a medium-term basis I have seen little to support the idea that the decline is over. So while we may be getting closer we are in my view still not there and following any short-term bounce from here another shot to the downside is expected and I remain neutral on the medium-term. Long-term I am bearish. The bonds are in a position to rally over the very near-term but any rally from here should be viewed as only as bounce within a still bearish short and medium-term pattern. The XAU followed through nicely to Tuesday’s reversal and closed on its high of the day. We are still not out of the woods, however, the decline from February 27 is confirmed as corrective and could indeed be a completed “b”. The indicators are close to confirming but have not done so as yet so I am going to remain neutral in all time frames but a move to bullish could be close.

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.