DAILY TECHNICAL MARKET COMMENT

By: Larry Katz

April 19, 2001

*These are preliminary numbers and will be adjusted tomorrow

The DJIA gained 398 points and the S&P added 47 points on volume of 1.89 billion shares. The A/D line added 950 units. The new highs expanded and the new lows were about flat. The Russell 2000 gained 10.93 points. I am going to remain neutral on the short-term and move to neutral on the medium-term. The Value-line added 37.20 points. The short-term is neutral. I am going to move to neutral on the medium-term. The NASDAQ Composite gained 156 points and the NASDAQ 100 added 159 points. The short-term is neutral and getting overbought. I am going to stay neutral on the medium-term but a move to bullish could occur if we correct soon. The DJTA gained 100 points. The short-term is neutral and approaching resistance. I am going to move to neutral on the medium-term. The DJUA and UTY closed slightly lower. The short and medium-term is neutral. The long-term remains bearish.

The S&P blew right through all the resistance levels discussed yesterday early in the day opening the way for the post April 12 rally to extend, and extend it did. There are a couple of ways to count the rally from April l2 as it relates to the post April 4 advance.  The first is that it is a third of a third from April 4 and the latter is that it is a “c” wave from that same low. However, the hourly chart from April 12 cannot be counted as a five, so in either case the rally is not complete with yesterday surely looking like a third of a third. Minimally we need a couple of 4’s and 5’s and could see as many as four 4’s and 5’s before the pattern from April 12 is complete. There is a cluster of resistance on the S&P in the 1255-1268 zone, which I expect will be challenged before we can consider this advance complete. At 1257 the rally from April 4 will be 1.618 the March 22-March 27 advance. The .383 retracement of the decline from September of 2000 comes in at 1255 and the .618 retracement of the decline from January 31 is near 1267. The alternate count allows for the possibility that the rally from Tuesdays low was a “c” wave from April 12, which in turn completed a double three from April 4. What is interesting about this count is that the rally from April 12 would be equal to the rally from April 4 to April 11 at 1248 and that is the exact high yesterday. While it is possible it is still my alternate count. The DJIA blew right through resistance as did the S&P and is  clearly extending the rally from April 12. As is the case with the S&P the rally from April 12 can be counted as either a “c” wave or a third of a third from April 4. As is also the case with the S&P the rally from April 12 cannot be counted as a completed five-wave pattern on the hourly chart. What we saw yesterday was most likely a third of a third and at a minimum a couple of 4’s and 5’s will be needed to complete the pattern. The hourly chart of the NDX shows three-waves up from Tuesday’s low with yesterday most likely completing wave 3. This rally is either an extended fifth wave from April 4, a third of a third from April 4 or a “c” wave from April 4 but since we only have three-waves up it is not complete so a move back above yesterday’s high should be the minimum expectation. Support: S&P; 1220-1222, 1200-1204, DJIA; 10,450-10,460, 10,320-10,335, NDX; 1790-1795, 1733-1742. Resistance: S&P; 1255-1256, 1268-1272, DJIA; 10,750-10,770, 10,810-10,835, NDX; 1900-1910, 1959.

The averages did give back a little into the close but given the extent of the gains it was a very minor amount. What was more impressive in my view is that they held on to so much of their gains and did so for the better part of the day. Volume, which had been mediocre the past several days expanded sharply reaching one of the two or three highest days on record. Breadth was positive but not even two to one positive and given a 400-point gain in the DJIA was a little disappointing. We did, however, get a sharp expansion in the new highs confirming the averages. We also had broad based participation with the small cap averages such as the Value-line and the technology heavy NASDAQ averages rallying smartly.

The CBOE put to call ratio moved down sharply and was quite bearish. The OEX ratio also moved lower and was close to negative. The breadth and volume oscillators moved higher. The former is borderline overbought and the volume oscillator is excessively overbought. The 3-day oscillator is overbought and back above the +600 level. The McClellan oscillator is slightly overbought.  The 10-day and open 10-day Arms moved down sharply and are now overbought and negative. The 5-day arms is negative and the 21-day Arms is close to the high end of neutral. The new 10-day Arms is back below .74 and negative. The daily range oscillators are approaching overbought. The daily trend oscillators are positive.

Yesterday I pointed out that the tone of the market was showing some solid improvement. Bad news was being ignored or shrugged off and the market was closing strong after opening poorly. Wednesday that carried one step further as the market showed a very positive reaction to positive news. The rally was broad based and quite impressive was also accompanied by a sharp expansion in volume, which is something that had been lacking during the bulk of the April advance. However, while the expansion in volume is a plus, at least for the short-term it also looked to be a bit excessive and may turn out to be a capitulation in reverse. Moreover, the ratio of up to down volume while decent was only that, decent, at a little better than 3 to 1 and that is not anything overly special. Meanwhile, a number of key indicators have moved to overbought or close including the breadth and volume oscillators. The volume oscillator did reach thrust type levels yesterday but the breadth oscillator and the McClellan oscillator or not even close. That could change over the next few days but given the take-away figures for the breadth oscillator in particular it is going to take a virtual explosion in breadth to accomplish that feat. If that does occur it will indeed be a very bullish development for the medium-term, and I will be watching closely. In the meantime, these indicators are now negative. The Arms indexes have also turned negative including the open 10, which is now officially overbought and the new 10 is now set up to issue its third sell signal in a little over a week. Moreover, the technical barometer is now back to a –6 reading on the outside position and over the next two days that could even become more negative. This could be early as it was in late December through early to mid January but it surely is not bullish. On a short-term basis the rally is not over and higher prices are expected. This is supported by the hourly charts, short-term wave counts and the fact that the 3-day oscillator once again moved above the +600 level. Hourly momentum indicators are also in a position to support higher prices. However, the overall technical backdrop has deteriorated greatly. A number of indicators are at their most negative since late January-early February. While I do expect to see higher prices over the near-term it is likely that the bulk of the rally is behind us and I am going to remain neutral. It is possible over the next few days to see some key indicators reach thrust type readings and if that does occur it will clearly have bullish medium-term implications. However, given where we are today we are faced with what looks to be more of a negative backdrop with a number of indicators turning negative or close to doing so. That could actually turn the medium-term picture negative but for now I think neutral is a good place to be. Long-term I remain bearish. The bonds look like they are close to a rally and I am moving from bearish to neutral on the short-term. Medium-term I remain negative. The XAU closed at its high tracing out a positive reversal pattern. We still have some resistance to overcome not far from yesterday’s close but given the price performance and the indicators I am moving back to bullish in all time frames.

We are holding a 1/3 position in the QQQ’s from 40. They closed at 45.55 The stop was raised to 43.20 per the intra day hotline. Sell the position on any move above 47.35. 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.