DAILY TECHNICAL MARKET COMMENT

By: Larry Katz

April 27, 2001

*These are preliminary numbers and will be adjusted tomorrow

The DJIA gained 67 points and the S&P added 6 points on 1.24 billion shares. The A/D line added about 800 units. The new highs expanded and the new lows contracted. The Russell 2000 gained 4.82 points. I am neutral on both the short and medium-term. The Value-line added 8.47 points. The short and medium-term is neutral. The NASDAQ Composite lost 25 points and the NASDAQ 100 lost 50 points. I am going to stay neutral on the short-term but it is weak. The medium-term is also neutral but close to a change. The DJTA gained 58 points. The short-term is neutral. The medium-term is neutral but beginning to weaken. The DJUA and UTY closed higher. The short and medium-term are neutral. The long-term remains negative.  

The S&P rally from Wednesday’s low can be counted as a very clean five-wave pattern on the hourly chart at yesterday’s high. We also have an acceptable five-wave decline on the hourly chart from last weeks high into the low on Wednesday. Logically one of these fives has to be wrong. However, one or even both could be a “c” wave of an irregular. The five down from April 18 and the five up from Monday, but if the latter is correct than the five down is not. Sometimes one has to sit back and see how things unfold and this is one of those times as it relates to the S&P. However, I am confident that the uncertainties will clear themselves up in very short order. The DJIA hourly chart from Thursday can also be counted as a five at yesterday’s high. Unlike the S&P this rally did carry to new highs and also did not follow a possible five-wave decline as the pattern into Wednesday’s low was clearly corrective. I am counting this rally as wave .5 of iii from the April 4 low. If correct we should see a modest correction back towards the low of earlier this week, which should then be followed by a rally to modest new highs to complete the post April 4 advance. The NDX rally from Wednesday into yesterday’s high is a clear three-wave pattern on the hourly chart. It may be the “a” wave of a larger pattern with yesterdays decline wave “b” of a flat. That would allow for a move back above yesterday’s high but the fact that we have a three strongly supports the five-wave decline from last week into Wednesday and argues strongly that the low of Wednesday will be broken in either a third or “c” wave. Support: 1232-1234, 1220-1222, 1204-1206, DJIA; 10,560-10,580, 10,360-10,380, NDX; 1740-1746, 1640-1650, 1590-1600. Resistance: S&P 1250-1253, 1260-1262, DJIA; 100,750-10,760, 10,820-10,845, NDX; 1800-1812, 1860-1864, 1890-1900.

The market showed some good follow-through to Wednesday’s reversal and strong close early on with the DJIA moving above its April 20 peak. The NYSE Composite also moved above last weeks peak but the S&P in spite of its strong early gains failed to do. The market did manage to hold onto some of those gains but nonetheless gave a good portion of it back with the DJIA closing about mid range while the S&P closing much closer to its low. Volume did expand a bit over Wednesday. That did confirm price but given the weak close I would ate it as only neutral. Breadth was pretty good with the A/D line managing to hold onto most of its gains and we did get conformation from the new highs. The small cap averages did weaken but also held up better than the big cap stocks The NASDAQ averages were again the weak link closing lower and not far off the low of the day and not far from Wednesday’s low.

The CBOE put to call ratio moved down sharply from Wednesday and was bearish. The OEX ratio moved higher and was bullish. The breadth oscillator moved higher. It is close to overbought and beginning to set up negative divergences. The volume oscillator is in a similar configuration but is still very overbought. The 3-day oscillator moved above the +600 level and that is usually a sign of higher prices. The McClellan oscillator is slightly overbought but did move above last weeks peak. The 10-day and open 1o-day Arms moved lower. They are neutral but closer to overbought. The five-day Arms is neutral but closer to overbought. The 21-day Arms is neutral but closer to oversold. The new 10-day arms has again moved below .80 and remains negative. The daily range oscillators are neutral but close to overbought. The daily trend oscillators are positive but beginning to ease especially on the NASDAQ averages.

The DJIA’s move above last weeks high was confirmed by the NYSE Composite but not by the S&P or the NASDAQ averages. I am beginning to see a strikingly similar pattern to what we saw in late January-early February when the NDX peaked on January 24, the S&P on January 31 and the DJIA in early February. I don’t at this time expect to see similar results but it is worth noting. It is also quite disappointing to see the strong relative strength that the NDX showed earlier in the month almost completely slip away this past week. The fact that we are dealing with end of month may have something to do with this but it is disappointing and makes a tough job more so. While we do have some divergences from the averages, which should not be ignored we also had some conformation of the new highs in both the DJIA and the NYSE Composite. The number of new highs for example, at least on a preliminary basis did best their peak seen on April 18. We also got conformation from the McClellan oscillator, also on a preliminary basis. That conformation was by the smallest of margins but it did confirm. In addition, the 3-day oscillator also moved above the +600 level and in most cases a move above +600 has been a strong indication of higher prices over the near-term. That does not mean that we cannot have a modest decline but it has had a good record. Thus I see enough to suggest, modest decline not withstanding, that the averages should record a higher closing price than what we saw yesterday. At the same time, a number of indicators are still in fairly negative shape. The Arms indexes for one remain close to overbought levels and yesterday the new 10-day arms moved back below .80. A sell signal is rendered when the new 10 moves below .80 and then back above so we are now facing a fourth signal since April 6. The breadth and volume oscillator remain at or near overbought levels and are also beginning to develop negative divergences. Short-term sentiment is also beginning to slip again with the CBOE put to call ratio moving back to one-day negative readings yesterday. It was not at excessive levels but it is headed in that direction. Over the near term I expect there is enough left to keep the rally going a bit longer but the mixed signals from the averages and the indicators keeps me in the neutral camp for the short-term. I am going to remain neutral on the medium-term for now. Long-term I remain bearish. The short-term picture on the binds remains unclear and I am neutral. Medium-term I am bearish. The XAU had a strong day doing exactly what it needed to do to keep the picture positive. We now have a bit of room to correct but if the pattern is bullish we should continue higher soon. I remain bullish in all time frames.

QQQ traders are flat. Stand aside for the opening but make sure to call the Noon pacific 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.