DAILY TECHNICAL MARKET COMMENT

By: Larry Katz

April 20, 2001

*These are preliminary numbers and will be adjusted tomorrow

The DJIA gained 77 points and the S&P added 15 points on volume of 1.45 billion shares. The A/D line added 200 units. The new highs eased sharply and the new lows also contracted. The Russell 2000 gained 5.89 points. The short-term is neutral and slightly overbought. The medium-term is neutral. The Value-line gained 17.70 points. The short-term is neutral but getting overbought. The medium-term is neutral. The NASDAQ Composite gained 102 points and the NASDAQ 100 added 122 points. The short-term is neutral and getting overbought. I am going to stay neutral on the medium-term. The DJTA gained 29 points. The short and medium-term are neutral. The DJUA and UTY closed lower. They are neutral short and medium-term and remain negative long-term.

The daily cart shows the rally from April 12 as a while new wave and that is why I am focusing on that rally. The post April 12 rally is either a “c” wave or a third of a third from April 4. In either case, we need to see a five wave pattern unfold from April 12 on the hourly chart and that is not yet in pace. The rally from yesterday’s low on the hourly chart is so far a three wave pattern so we should expect to see a bit more before it is complete. I am counting this rally as wave .5 of 3 but it may be only wave .5 of 3 of 3 from April 12. If indeed we are to get a five-wave pattern from April 12 then once this wave is complete we will need to se at least one but more small fourth and fifth wave but possibly two more 4’s and 5’s before the rally is over. The DJIA also shows what is so far a three-wave rally on the hourly chart from yesterday’s low. I am counting this rally as either wave .5 of 3 or wave 5 from the April 12 low. The rally from April 12 is either a third of a third from April 4 or a “c” wave from that same low.  The NASDAQ 100 is in wave 5 from April 17. The hourly chart is so far only three waves from yesterday’s low so wave 5 is not over. The rally from April 17 is either an extended fifth wave from April 4, a third or a third of a third from April 4 or a “c” wave from April 4. As is the case with the DJIA and the S&P the rally is not over so expect to see z bit more on the upside but we do look to be close to the completion of the rally from April 17. Support: S&P; 1245-1248, 1233, DJIA; 10,635-10,650, 10562, NDX; 1915-1918, 1825. Resistance: S&P; 1258-1261, 1268-1272, DJIA; 10,730-10,740, 10,810-10,835, NDX; 1960-1980, 2029.

The market as measured by the averages had another good ay opening weak and closing strong and near the highs of the day. The DJIA, which lagged badly, did finally make it above Wednesday’s high but the day was truly dominated by tech stocks. Volume was still relatively high but did contract a lot from Wednesday’s near record level. Breadth, however, was mediocre as the A/D line was barely positive. Moreover, the new highs contracted sharply.

The CBOE put to call ratio moved down sharply and was extremely negative. The OEX ratio also moved sharply lower and was quite bearish. The Breadth oscillator moved higher and is now officially overbought. The volume oscillator is extremely overbought. The 3-day oscillator turned down and is on a sell alert status. The McClellan oscillator was near unchanged and slightly overbought. The 10-day and open 10-day Arms moved lower and are overbought. The 5-day Arms is overbought and bearish while the 21-day Arms is neutral. The new 10-day Arms is negative. The daily range oscillators are slightly overbought. The daily trend oscillators are positive.

The pattern of strong closes continued yesterday as the averages came back from early modest loses to close near the high of the day. This is a continued positive for the short-term. Volume was good but the internals were not so hot. The A/D line was barely positive and the new highs were only half of what they were on Wednesday. I know it was only one day but this is a huge divergence that until corrected cannot be ignored.   Momentum indicators have weakened further with the breadth oscillator joining the rest as being officially overbought. The volume oscillator as mentioned yesterday has reached extreme levels of overbought and it is actually bordering on climactic. However, breadth related measures are only slightly overbought with the McClellan oscillator for example at a +100. Given the takeaway figures over the next few days it will be virtually impossible to see the breadth oscillator come close to thrust levels and in fact it will likely turn down today even on a strong breadth day suggesting a weak overbought reading. The Arms indexes are now overbought with the open 10 especially so. What a change a few weeks can make. Meanwhile, the outside position of the technical barometer is unofficially at a –10 (it will be official this week end). This as negative as it an get and is the worst I have ever seen (there will be more on this in the bi-weekly report). Suffice it to say that this is extreme. The higher close yesterday satisfied the signal from the +600 reading on the 3-day oscillator and that indicator turned down yesterday issuing a sell alert. The CBOE and OEX put to call ratio moved down sharply and are bearish. In addition, the Rydex ratio has weakened substantially. As of Wednesday the assets in Ursa and Arktos have moved down substantially and are not that far from where they were in late January. There is a one day lag as the numbers come out after this report is completed and given yesterday’s rally they could be even worse. The McClellan oscillator had a very minor net change of less than 2 points and that is usually a sign that a big move is close at hand short-term. As is usually the case, the direction is not known but given what I am seeing it could ultimately resolve down. That does not mean immediately as we still look to have some unfinished business on the upside as we finish off the rally from April 12 on the S&P and DJIA and April 17 on the NDX but from the looks of things the best of the rally is behind us and a decline looks close at hand. I am going to stay neutral on the short-term but could be switching to a sell signal soon. The medium-term is tricky. I see some indications that we are only completing the first wave of a larger medium-term rally and following a deep short-term decline another leg up could unfold. However, a number of indicators are not only short-term negative but also turning medium-term negative. I am going to stay neutral for now. Long-term I am fully convinced that the bear market is still in force and I remain negative. The bonds continued lower and the short-term move to neutral looks premature as the decline is clearly extending. I am going to stay neutral on the short-term but with a negative bias. Medium-term I remain steadfastly negative as we are just getting underway. The XAU was about flat today. It did, however, poke its head above resistance. I am going to remain bullish in all time frames but the pattern indicates that in order to stay bullish we need to continue higher soon.      

We sold our 1/3 position in the QQQ’s per the instructions last night at 47.30 for a 7.30 gain. Stand aside for the morning. 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.