DAILY TECHNICAL MARKET COMMENT

By: Larry Katz

April 18, 2001

*These are preliminary numbers and will be adjusted tomorrow

The DJIA gained 58 points and the S&P added 12 points on volume of 1.10 billion shares. The A/D line added about 650 units. The new highs expanded slightly and the new lows eased a bit. The Russell 2000 gained 4.68 points recouping all of Monday’s loss. The short-term is neutral. The medium-term is negative but improving. The Value-line gained 10.19 points. The short-term is neutral. The medium-term is negative but improving. The NASDAQ Composite gained 14 points and the NASDAQ 100 added 21 points. Both closed closer to the highs of the day but did not come close to recovering what they lost on Monday. The short-term is neutral but beginning to weaken. The medium-term is neutral but in the process of completing a bottom. The DJTA gained 21 points. 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 as is the medium-term. The long-term remains negative.

The rally from last Thursday’s low on the S&P remains sloppy and difficult to count as impulsive. It is possible to count the rally from April 12 as a completed or near completed fifth-wave   diagonal triangle from the April 4 low as the pattern does have the overlaps as well as the fact that two of the sub waves show three-wave patterns. If this is correct we should know  in fairly short order as post diagonal triangle patterns are very distinctive. All one has to do is take a look at the bonds from the March 23 high. There is a lot of resistance in the S&P between yesterday’s close near 1192 and the 1200 area. First off, this is where the rally from April 4 would be equal to the March 22-March 27 rally. In addition, a .383 retracment of the decline from January 31 and a .618 retracement of the decline from March 6. Last but not least, the rally from April 12 would be .618 the rally from April 4 to April 5 near 1195. There is a strong argument from a Fibonacci perspective that a top of at least a short-term nature is close at hand. A move much above 1200 would be a strong sign that the rally was extending. The DJIA hourly chart from last Thursday is quite similar in nature to the S&P. It is sloppy with a number of overlaps and as is the case with the S&P it is possible that this rally is a fifth wave diagonal triangle from April 4. The DJIA like the S&P is close to some very strong Fibonacci resistance. The rally from April 4 would be equal to the March 22 April 2 at 10,300. A .618 retracment of the decline from February 6 to March 22 is close to 10,275 and the rally from April 12 would be .618 the length of the April 4-April 5 wave 1 rally at 10,275. There is a lot of Fibonacci resistance on the DJIA in the 10,260-10,300 area. A strong move through that level would imply that the rally was indeed extending. The NDX moved below Monday’s low but the smallest of margins but did move below it and that confirmed that the rally from Thursday was a completed wave on the daily chart. As discussed yesterday this rally was a three and as such it is possible to count the entire pattern from April 11 as some sort of a fourth- wave flat from April 4. If that is correct then we should see a modest new high to complete a five- wave pattern from April 4 prior to a bigger correction. A move below yesterday’s low of 1603 would likely invalidate that count and make it more difficult to count the rally as impulsive. Support: S&P; 1168-1170, 1153-1155, DJIA; 10,075, 9892-9903, NDX; 1603,1572-1580, 1485-1494. Resistance: S&P 1196-1202, 1230-1235, DJIA; 10,260-10,300, 10,450, NDX; 1684-1690, 1780-1800.

The market closed well with both the DJIA and the S&P closing near the highs of the day after surviving a number of selling attempts. Volume picked up a bit over Monday but was still extremely low in comparison to what we have seen of late. Breadth was OK but that was about it. The small cap averages did well managing to recoup all of Monday’s losses and they too closed near the high. The NASDAQ averages were able to reverse a weak opening and close higher but they closed well off their session high and did not recover a good portion of Monday’s loss. However, they did close higher and most all of the important averages participated in the rally.

The CBOE put to call ratio was relatively high and not far from bullish levels. The OEX ratio was borderline bullish. The breadth and volume oscillators moved higher. They are neutral but the volume oscillator is close to overbought. The 3-day oscillator is neutral and diverging. The McClellan oscillator is neutral but above zero. 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 close to neutral. The new 10-day Arms is negative. The daily range oscillators are neutral. The daily trend oscillators are positive.

I am beginning to see some real improvement in the tone of the market. Over the past couple of weeks we have seen a lot of bad news hit and the market has been able to not only hold together but also rally. We have also seen over the past few days weak openings followed by strong closes, which is another positive development especially since the weak openings have been news related. These two developments together suggest that that market may have in fact begun to discount the negatives and is now beginning to focus on the future. However, the last few days the rally has progressed on very light volume Something I learned a long time ago is that the market needs volume to go up but can fall on light volume and the lack of volume on this rally, especially of late suggests that there is a big lack of conviction on the part of traders and investors alike. The market can rally on light volume but not for long and this lack of volume detracts quite a bit from the positive price performance as well as the positive tone. The indicators are giving off mixed signals. A number of momentum indicators such as the breadth and volume oscillators are not far from overbought levels and given today’s takeaway figures could become overbought on a relatively flat day. The 10-day Arms is poised to move substantially lower and the open 10 as well and both could move towards overbought levels. The 5-day Arms is already negative and the new 10 Arms is on a second sell signal from last week. Prices are approaching important resistance and a strong day today could push them through levels that from a short-term perspective could be viewed as important but given the position of most of the indicators we look to be getting closet to the end of a move and we could get a short-term sell signal as early as today. However, the put to call ratios in spite of the rally have remained quite high and from a contrary perspective this is a plus. This week is options expiration week and that has been known to cause some distortions on the ratio but on the surface this has to be viewed as a genuine positive. I am going to stay neutral on the short-term but depending on what we see today a sell signal could be right around the corner. The medium-term is neutral but that too could change today. As for the long-term nothing has changed we are still in a bear market and remain negative. The bonds had a decent day but nothing conclusive. The rally could continue but both the short and medium-term remain negative. The XAU did not get through resistance near 53.25. I am neutral in all time frames.

We are holding a 1/3 position in the QQQ’s from 40. They closed at 41.25. 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.