DAILY TECHNICAL MARKET COMMENT

By: Larry Katz

April 26, 2001

*These are preliminary numbers and will be adjusted tomorrow

The DJIA gained 170 points and the S&P added 19 points on volume of 1.16 billion shares. The A/D line added about 1000 units. The new highs expanded and the new lows eased. The Russell 2000 gained 10.40 points. The short and medium-term are neutral. The Value-line gained 19.18 point. The short and medium-term are neutral. The NASDAQ Composite gained 43 points and the NASDAQ 100 gained 51 points. I am going to move from bearish to neutral on the short-term but this could change again as early as today. Medium-term I am neutral but this too is close to turning. The DJTA closed slightly lower. The short-term is neutral but weakening. The medium-term is neutral but also beginning to weaken. The DJUA and UTY were about flat. They are neutral short and medium-term. The long-term is negative.

The S&P held important near-term support in the vicinity of the 50% percent retracement of the rally from April 12 to April 20. This keeps open the possibility that the April 12 rally was a third of a third from April 4. However, we are also dealing with what can be counted as a five-wave decline on the hourly chart from the April 20 high into yesterday’s low. Granted, that five is not the best looking five I have seen, and as discussed yesterday the internal wave relationships are not great either. However, it has not violated any of Elliott’s rules so it can be counted as a five and we need to keep in mind that the patterns are not being graded on their aesthetics. The daily chart remains down so the pattern has not been confirmed as complete but any move today above yesterday’s high of 1232.36 would do the trick. The fact that the decline can be counted as a five has to be respected and that implies once confirmed of course that the decline into yesterdays low was the first wave of a larger pattern. I will go with that count unless invalidated. The DJIA on the other hand has declined in what is clearly a corrective pattern and has also held well above the .383 retracement of the post April 12 rally. This does support the possibility that the April 12 rally was a third of a third from April 4 a lot stronger than the pattern on the S&P.  However, the decline can be just as easily counted as an “a” wave of a larger corrective decline with the current rally the “b’ wave. If correct though we need to head lower almost immediately. If not then the odds will be high that the DJIA will indeed move above the April 20 peak. The NDX stopped right at a .383 retracement of the post April 4 rally, which was also the .618 retracement of the rally from April 17. The hourly chart of the NDX can, like the S&P be counted as a five wave pattern from last Friday at yesterday’s low. Also like the S&P this five is not the best looking one but it also has broken no rules. The fact that the NDX stopped right at a .618 retracement of the rally from April 17 leaves open the possibility that the decline is related only to the April 17 advance. However, the five down until proven otherwise needs to be respected and that implies that once any rally is over a move below the recent low should be expected. If that occurs it will also confirm that the decline from April 20 is related to the entire post April4 advance. Support: S&P; 1215-1216, 1204-1206, 1192-1195, DJIA; 10,519-10,525, 10,400-10,415, NDX; 1770-1775, 1740-1746, 1640-1652. Resistance: S&P; 1236-1238, 1250-1253, DJIA; 10,700-10,725, 10,800, NDX; 1834-1838, 1860-1865, 1890-1900.

After opening a bit lower the market was able to turn it around and close with solid gains. They closed close to their session highs and had a decent last hour. This reversed the pattern of the past few days in which prices closed nearer their lows. Volume, however, eased a bit from Tuesday, which does detract from the positive price performance. Breadth on the other hand was solid as the A/D line was nearly 2 to 1 positive. We also saw a nice expansion in the number of new highs and that did confirm price. The NASDAQ continued to lag but did close decently and not far off the highs. However, unlike the DJIA, which actually moved above Tuesday’s high they did not come close.

The CBOE put to call ratio was about in line with Tuesday’s level and was slightly neutral. The OEX ratio eased a lot but was still bullish. The breadth oscillator moved a bit higher. It is neutral but just coming off overbought levels. The volume oscillator moved lower but is still overbought. The 3-day oscillator moved higher. It is neutral but close to overbought. The McClellan oscillator moved higher. It is neutral. The 10-day and open 10-day Arms moved higher. They are neutral but the open 10 is closer to overbought. The 5-day Arms is borderline overbought. The 21-day Arms is neutral but close to oversold. The new 10-day Arms is negative. The daily range oscillators are neutral. The daily trend oscillators are positive.

The market was able to break its three-day losing streak and close the session with fairly solid gains. Breadth was good and the new highs confirmed, but the contraction in volume although only modest is a problem. The last few days of a month tend to have a positive bias. That is sometimes not reflected in the big cap averages but does show up a lot in the breadth statistics and often times in the small cap averages such as the Russell 2000 and the Value-line. We are in that period now so we could expect to see a positive bias. The CBOE put to call ratio has improved over the past couple of days. It is not close to bell ringing buy levels and in fact the 10-day moving average is on bearish territory, However, the fact that it did not move lower yesterday in spite of the strong price gains is a short-term plus.  The Rydex ratio has improved albeit only slightly so. However, most of that improvement was due to a drop in the bullish funds as the asset levels in Arktos and Ursa are still close to their lows. Momentum indicators are mixed but still mostly on the negative side. However, a strong breadth day today could push the 3-day oscillator above the +600 level and could possibly push the McClellan oscillator above last weeks high. This would give a shot in the arm to the short-term from the positive side so we will be watching closely. Speaking of the McClellan oscillator, the minor net change on Tuesday did once again lead to a big move on the short-term as the DJIA gained over 170 points. The Arms indexes have eased a bit and are back to neutral from overbought but the open 10 is still closer to overbought while the new 10 remains on a sell signal. We are facing what can be counted as a five-wave decline on the hourly chart of both the S&P and the NDX from last weeks high and that five does imply lower prices once the bounce is over. However, any five can be counted as a three. So while I respect it I also am aware that the pattern is not 100% reliable.  Meanwhile the technical picture is mixed enough to move back to neutral from bearish on the short-term. This shift may be very short-lived but given the overall picture it does appear to be the prudent thing to do. Medium-term I remain neutral This is poised to change but I am still not sure in which direction. Long-term I remain bearish. The short-term pattern on the bonds is not clear. I am going to remain neutral. Medium-term I remain bearish. I am going to remain in the bullish camp on the XAU for a bit longer but frankly time is running out. If it does not rally strongly and soon it could reverse.

We covered the remaining ¼ short position in the QQQ’s per the early morning hotline for a 5.10 point gain and a gain 4.12 points on the ½ position overall. Stand aside for the opening but make sure to call the early morning hotline. 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.        

The chart below is an hourly chart of the S&P. Wave 4 came close but did not overlap wave 1 as the low of wave 1 was 1234.41 and the high of wave 4 was 1233.54.