DAILY TECHNICAL MARKET COMMENT

By: Larry Katz

April 17, 2001

*These are preliminary numbers and will be adjusted tomorrow

The DJIA gained 31 points and the S&P lost 4 points on volume of just under 900 million shares. The A/D line lost about 500 units. The new highs expanded bit and the new lows eased. The Russell 2000 lost 4.12 points. The short-term is neutral. The medium-term is negative. The Value-line lost 7.60 points. The short-term is neutral. The medium-term remains negative. The NASDAQ Composite lost 51 points and the NASDAQ 100 lost 64 points. The short-term is neutral but close to confirming a top. The medium-term is neutral but also close to confirming a low. The DJTA closed lower. The short-term is neutral. The medium-term is improving but is still negative. The DJUA and UTY closed higher. The short-term is neutral and also right at important resistance. The medium-term is neutral and the long-term is negative.

The rally from last Thursday’s low on the daily chart from April 4 can be counted as a fifth wave from April 4 on the S&P. However, the hourly chart is a three-wave pattern at least so far leaving open a number of possibilities from Thursday. The two most obvious are that the rally is not over and only part of wave 5 and the other is that it is not a fifth wave at all but a “b” wave of a possible irregular. This also leaves open the possibility that the rally from April 4 is not a five and as such not a “c” wave from March 22 but instead a more complex three wave pattern and part of a still incomplete double three from March 22. I had been going with the idea that the rally from March 22 was a possible fourth wave from January 31. Given the weekly chart wave 3 either began on February 27 or March 6. Fourth waves usually retrace about 38% of the third wave they are correcting and in most cases not more than 50%. The move above the March 27 peak took the S&P well enough above a 50% retracement of the decline from either of those points to make it very unlikely that the rally is a fourth wave from January. This then allows for the possibility that what we saw on March 22 was indeed a five- wave pattern from January. Whether this was all of wave “c” from September is another story and one I will address in a lot more detail in the bi-weekly report this weekend. The DJIA hourly and daily chart from April 4 is similar to the S&P. The rally from Thursday’s low is so far a three-wave pattern on the hourly chart making it impossible to count as a fifth wave from April 4. It is possible that what we saw yesterday was part of an irregular second wave from Thursday and if so a third wave should get underway now. This also applies to the S&P. A move below yesterday’s low would likely invalidate that count but as long as that low holds the rally from Thursday can extend. The NASDAQ 100 hourly chart from Thursday is also a three at Thursday’s high making it hard to count as a fifth-wave from April 4. However, on this average it is possible to count the early peak on Thursday as wave 5 and everything since that time as part of an irregular correction. This would leave a clean five in place from April 4. At this point nothing is confirmed but the next day or two will in my view should tell us a lot about the short-term position of all of the averages. Support: S&P; 1164-1165, 1148-1150, DJIA; 10,030-10,037, 9875-9882, 9680-9692, NDX; 1572-1580, 1485-1494. Resistance: S&P; 1191-1194, 1200-1204, DJIA; 10,190-10,210, 10,270-10,300, NDX; 1684-1690, 1780-1800.

A late rally helped the S&P close well off its low and pushed the DJIA back into positive territory leaving a mixed close. At the same time the averages also failed to capitalize on early strength and as an early rally following a slightly lower opening failed. The NASDAQ averages did bounce a bit into the close as did the small cap averages but they still closed lower with the NASDAQ in particular closing much closer to the lows. The rally or attempted rally in the listed area was accompanied by a sharp drop in volume and modestly negative breadth. We did get a modest expansion in the new highs but they remain well below their peak for this rally seen on April 10.

The CBOE put to call ratio was neutral but closer to bullish. The OEX ratio was excessively high and very bullish. The breadth and volume oscillators moved lower. They are neutral but beginning to weaken. The 3-day oscillator is neutral but weak. The McClellan oscillator is neutral but still above zero. The 10-day and open 10-day Arms eased a bit. The 10-day is still close to oversold while the open 10 is neutral. The 5-day Arms is overbought and negative. The 21-day Arms is oversold but easing a lot. The new 10-day Arms has issued its second sell signal in the past week. The daily range oscillators are neutral. The daily trend oscillators are positive.

It seemed like old times yesterday with the DJIA moving higher while the S&P and technology as measured by the NASDAQ was lower. They just can’t seem to go to the same party together very often. The market did, outside of technology that is, give a decent account of itself fighting back from two selling attempts yesterday but the lack of volume makes the rally attempts look extremely suspect. Technically a number of potential divergences are beginning to develop that could set up for a good decline in the very near future. They have not been confirmed as yet but they are in the process of doing so. These include the breadth and volume oscillator, the McClellan oscillator as well as the 3-day oscillator. The simple 10-day Arms is still in good shape, but the takeaway figures the next two days are very high and this indicator could weaken substantially on even a flat or modestly negative couple of days. Meanwhile, the new 10-day Arms has issued a second sell signal as it moved above the .80 level after falling below it, and remains bearish. We saw a similar pattern going into the January peak as it issued a sell signal on January 18 and another on January 25. This was early but ultimately correct. As an aside a third signal was issued on February 6, three days off the S&P closing high and on the high of the DJIA. The CBOE put to call ratio while not exceptionally bullish is still OK. The Rydex ratio has weakened but is still OK. However, the asset levels in both Ursa and Arktos remain a big problem as they are lot closer to levels seen near tops than bottoms. The short-term picture us beginning to weaken. There is still enough to support the possibility of further gains over the near-term but it is likely that the bulk of the rally from April 4 and most likely March 22 is behind us and a fairly solid decline looks to be close at hand. For now I will remain neutral but a sell signal could be forthcoming. The nature of the decline if we do get it will be important to the medium-term. It may be nothing more than a deep test of the lows or it could produce marginal new lows. In fact I see the strong likelihood of mixed results. I am going to remain neutral on the medium-term for now but a sell signal could develop over the next couple of days depending on what the short-term indicators look like. Long-term the bear market is far from over and I remain bearish. The bonds broke badly and are at new lows. There is a possibility to count a near complete five-wave pattern from March 23 on the daily chart, which could allow for a decent rally but for now the short and medium-term remains bearish. The XAU is showing a three-wave rally from April 3 and is very close to important resistance near the 53 level. A move through 53.25 would be bullish given that momentum has turned positive. I am going to remain neutral in all time frames but a switch to bullish could come as early as tomorrow.

We are holding a 1/3 position in the QQQ’s from 40. They closed at 40.25. Keep the stop at 35 for now but make sure to call the intra day hotline for any changes. 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.