DAILY TECHNICAL MARKET COMMENT

By: Larry Katz

April 6, 2001

*These are preliminary numbers and will be adjusted tomorrow

The DJIA gained 402 points and the S&P added 48 points on 1.33 billion shares. The A/D line added over 1550 units. The new highs expanded and the new lows eased. The Russell 2000 gained 18.99 points. I am moving back to neutral on the short-term but with the idea that the rally is not over. I remain neutral on the medium-term. The Value-line gained 48.52 points. I am moving to neutral on the short-term. The medium-term is neutral but weak. The NASDAQ Composite gained 146 points and the NASDAQ 100 gained 148 points. They closed near their highs of the day. I am going to remain neutral on the short-term with an upward bias. Medium-term I am neutral with a bottoming bias. The DJTA closed sharply higher. The short-term is neutral but improving. The medium-term is negative. The DJUA and UTY closed lower to flat. The short-term is neutral. The medium-term remains negative but is close to going neutral and the long-term is negative.

Yesterday’s rally has confirmed the decline from March 27 on the S&P as a three-wave pattern on the daily chart. The rally stopped right at a .618 retracement of that decline leaving open the possibility that yesterday’s rally was a “b” wave from March 27. However, the hourly chart can be counted as a very clean five-wave pattern from the low on Wednesday making it much more likely that Wednesday completed a “b” wave from March 22. This five argues that the rally has more to go and that can evolve in one of two ways. The first is that the rally continues and the five turns into a seven. We have seen that a number of times with the most recent occurrence in late March. The other possibility is that the S&P corrects now and confirms the pattern as a five before rallying further. At this point I am approaching the rally with the idea that it is either a “c” wave or part of a second three from March 22 or of a triangle from the same low. If the rally is a second three than the low on Wednesday would be an X wave instead of a “b” wave and how the rally progresses will tell. The DJIA hourly chart can also be counted as a five from Wednesday’s low but like the S&P this five has not been confirmed by the daily chart. As is the case with the S&P the five-wave rally argues for higher prices it is how we get those higher prices that will tell the story. I am counting the decline into Wednesday as a “b” or X wave just like the S&P. The rally is either a “c” wave of a flat, part of a second three from March 22 or a “c” wave of a triangle. The first two counts allow for a move above the April 2 high, the triangle does not. Interestingly, the rally from Wednesday would be equal in length to the rally from March 22 to April 2 at 10,260 and that is right at the .618 retracement of the decline from February 6. The NDX moved above Wednesday’s high confirming the decline from March 27 as a completed wave on the daily chart. This decline was a clean five on the hourly chart. I was looking at the possibility that this decline was a third wave from March 23 with the current rally a fourth wave. That is still possible but if so there is not much more room on the upside as we are fast approaching a 50% retracement of the post March 27 decline. If that occurs then I would view the March 23 high as the orthodox end of the rally from March 22. This decline may be counted as wave v from January 23 or only was wave 5 of iii. The weekly chart remains the key. For this week we would have to move above last weeks high of 1754, which is still a long way off. Next week the parameters are lowered greatly. Support: S&P; 1128-1130, 1113-1116, DJIA; 9715-9722, 9580-9600, NDX; 1455-1458, 1410-1415. Resistance: S&P; 1154-1157, 1170-1173, DJIA 9990-10,010, 10,190-10,210, NDX; 1545-1552, 1595-1603.

The market put in a stellar performance yesterday. The averages recorded exceptional gains and also closed near the high of the day.  The rally was broad based with nearly all of the key averages participating including the NASDAQ. Breadth was solid at better than a 3 to 1 positive ratio. Volume was good but did ease from Wednesday’s level and this needs to be watched carefully. The new highs expanded but were not great and this too needs to be monitored but overall the performance was very good.

The CBOE put to call ratio eased a bit but was only neutral. The OEX ratio moved lower and was bearish. The breadth and volume oscillators moved higher. The breadth oscillator is neutral but closer to overbought while the volume oscillator is slightly overbought. The 3-day oscillator is overbought. The McClellan oscillator moved back above zero but only slightly so. It is neutral. The 10-day Arms moved a bit lower but is still slightly oversold. The open 10-day Arms is neutral. The 5-day arms is oversold and positive as is the 21-day Arms. The new 10-day Arms moved down sharply and has completed the first part of a sell signal. The range oscillators are neutral. The daily trend oscillators are positive.

Yesterday I said that I thought the market had enough in it to challenge the late March early April peaks but I certainly did not expect it to happen in one day. In reality only the DJIA has so far come close as it came within 62 points of its April peak. The S&P is still over 31 points below but still had a solid session. I think one of the biggest surprises for me yesterday was the CBOE put to call ratio, which was relatively high especially given the extent of the gains. I would have to rate this as a very positive development and one strong argument that the rally is not a one- day wonder and should continue over the near-term. However, a number of momentum indicators have not only relieved their recent oversold condition but have moved towards overbought. This is most notable from the breadth and volume oscillators. What we need to watch for from these indicators is if over the next week or so they can reach overbought enough levels to indicate a thrust. Given the takeaway figures the next few days it is going to be quite a difficult feat to accomplish. The 10-day arms is still OK and could remain so for a bit longer. The 5-day Arms is also bullish and could remain so into early next week. However, the open 10-day Arms is neutral and below where it was on March 30 and March 8 and not far from where it was on January 24. However, the new 10-day Arms has moved down sharply and is below .80. This indicator gives a sell signal when it moves below .80 and then through .80, and the first half of the signal is in place. The last two confirmed signals were on March 12, two trading days after the March 8 peak and February 6, which was in the beginning of the big drop in the S&P and also the peak in the DJIA. The signal prior was on January 24. That was a few days early but timely nonetheless.  On a short-term basis I do not think this rally is over and expect to see further gains. I would be interested in playing the long side but only on pullbacks. While I expect to see the rally continue I do not see enough on a short-term basis to switch to bullish so I will stay neutral. The medium-term picture is another story. Once again it is tempting to switch to bullish but frankly in spite of yesterday’s very impressive performance there is a lot of things that are troublesome including the fact that a number of indicators have moved into the overbought threshold. They may indeed reach levels that would indicate a momentum thrust and if they do I would have to view that as a very bullish medium-term development. However, given their current position they are no better than neutral and actually could turn negative. I do believe that we may be close to a good medium-term low but still see the potential, once this rally runs its course, for another move lower. Until the indicators confirm a new move is underway I am going to remain neutral on the medium-term. Long-term I remain bearish. I still cannot rule out a bounce in bonds but they are also close to confirming the next leg down from the March 232 high is underway. Bounce withstanding, the short and medium-term remain negative. The XAU held up OK yesterday and closed near unchanged after opening lower. I remain neutral in all time frames but a change to bullish could be forthcoming.

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.