DAILY TECHNICAL MARKET COMMENT

By: Larry Katz

May 1, 2001

*These are preliminary numbers and will be adjusted tomorrow

The DJIA lost 75 points and the S&P lost 3.57 points on volume of 1.22 billion shares. The A/D line added about 370 units. The new highs eased slightly and the new lows did likewise. The Russell 2000 gained 1.36 points giving back most of its early gains and closing near the low of the day. The short-term is neutral but also a bit overbought. The medium-term is neutral but improving. The Value-line gained 8.58 points but also closed well off its best levels. The short-term is overbought and I ma neutral. The medium-term is neutral but also improving. The NASDAQ Composite gained 40 points and the NASDAQ 100 added 45 points. Both closed about in the middle of the days range but they did hold up a lot better than the listed averages. The short-term is negative but only slightly so. The medium-term is neutral. The DJTA closed lower and near the lows of the day. The short-term is neutral but easing. The medium-term is neutral but close to going negative. The DJUA and UTY closed about flat. The short and medium-term is neutral. The long-term remains negative.

The rally from last Thursday on the S&P can be counted as a five-wave pattern on the hourly chart with wave 4 taking the form of a triangle.  The post triangle thrust did carry a bit further than a normal measured move but the pattern is valid. This is the only way to count the rally from April 25 as impulsive, at least at this point, and as wave 5 of iii from April 4. However, the daily chart remains positive and that does allow for the rally to extend. A move above yesterday’s low of 1243.99 would confirm the pattern as complete while a move above yesterday’s high of 1269.30 would indicate that this count was wrong. From a Fibonacci perspective yesterday’s high was important as that is the area where wave 5 of iii was precisely equal to wave 1 of iii and also close to where wave iii was 2.618 wave i. The pattern on the DJIA from last Thursday’s low is much more difficult to count as impulsive, however, it is not impossible as I am still able to count the fifth wave of the pattern as an extended diagonal triangle with wave “e” of the diagonal extended. No rules have been broken as the “c” wave of the diagonal was not the shortest wave so it is possible. The alternate possibility is that that DJIA completed the orthodox peak of the rally on Thursday with the rally from late Thursday wave “b” of an irregular. In either case wave 5 of iii from April 4 can be counted as complete. The NDX moved right into resistance near the .618 retracement of the decline from April 20 to last weeks low. The rally from Thursday is so far a very clean three-wave pattern on the hourly chart. The decline mid day yesterday moved well below what could have been considered a fourth wave retracement from last Thursday’s low leaving what look to be a very neat double three from April 24. However, the daily chart remains up and as such we cannot confirm that the rally is complete. A move today below 1826 would do the trick. Until that occurs and in spite of what looks to be a very clear pattern it cannot be confirmed. A move above yesterday’s high of 1907 would not invalidate the bearish count but could certainly push it. It looks to me like the next day or two are important to the short-term in all three averages. Support: S&P; 1243, 1230-1232, 1210-1212, DJIA; 10,712, 10,615-10,624, 10,430-10,450. NDX; 1826, 1800-1804, 1660-1670. Resistance: S&P; 1258-1261, 1270-1274, DJIA; 10,810-10,830. 10,900-10,925, NDX; 1865-1875, 1900-1920.

The DJIA and the S&P traced out minor reversal patterns and although closing off their session lows they nonetheless closed much closer to the days low than high. The negative pattern was accompanied by a modest increase in trading volume, which tends to add some weight to the negative price performance. Breadth was modestly positive but also weakened substantially. The new highs eased a bit from Friday laving a slight divergence in place as the averages did move substantially through the highs of Friday. The new lows were of no consequence. The NASDAQ averages did close higher but only about in the middle of the days range. They did, however, hold up better than the listed averages for the first time in nearly two weeks.

The CBOE put to call ratio moved lower and was quite negative. The OEX ratio was about in line with Friday and slightly positive. The breadth oscillator moved higher. It is overbought but did best its April 19 peak eliminating the potential negative divergence. The volume oscillator is overbought and is diverging. The 3-day oscillator turned down from overbought levels but is still slightly positive. The McClellan oscillator moved a bit lower but by less than 2 points so we should be on the lookout for a fairly good sized move over the next couple of days. The 10-day and open 10-day Arms are neutral but just coming off overbought levels. The 5-day Arms is neutral but close to overbought. The 21-day Arms is neutral but close to oversold. The new 10 Arms moved lower and is not far from issuing another sell signal. The daily range oscillators turned down from near overbought levels and are showing a small negative divergence on both the S&P and the DJIA. The daily trend oscillators are positive but easing and not far from turning neutral.

The market tried to extend the recent gains but failed leaving a negative pattern in its wake and on modestly expanding volume. The A/D line did end with modest gains and we also saw modest gains from the secondary averages such as the Value-line but even they closed off their best levels of the day. As I mentioned last week, the end of month does tend to have a positive bias. Sometimes that can be reflected in the broad market such as via the A/D line and a more broadly based average such as the value-line. That is all behind us so we’ll get a better picture in the next day or two but I would expect that any end of month distortions will be corrected. The breadth oscillator eliminated its developing negative divergence, however, the A/D ratio is still diverging and both are overbought. Given the takeaway figures the next two days unless we get an acceleration in breadth the chance of seeing this indicator move to thrust levels will be very, very low. The balance of the momentum indicators are either overbought or close to overbought. And with the exception of the daily trend oscillators none are positive. The McClellan oscillator has a very minor movement yesterday suggesting the strong likelihood that a big move on a short-term basis is likely. The last two signals worked extremely well. The first came on April 19 and the last came on April 24. The first signal came from modest overbought levels with the oscillator moving from +103 to +100 and was followed by a drop of 46 S&P points. The second signal was from just above zero with the oscillator moving from +17 to +18 and led to a 62-point rally in the S&P.  As is usually the case the direction of that move is not known. However if near-term history is a guide the odds slightly favor a down move. And that seems to fit in well with a number of indicators and the wave counts. While I do favor a very short-term negative resolution the position of a number of indicators as well as the preferred wave count argue that once the decline is over a move back to modest new highs should be expected before the post April 4 pattern is complete. It is tempting to try to pick off a short-term decline but given the majority of the indicators neutral is still the best place to be. Medium-term I remain neutral but again that signal could change in the coming days. Long-term we remain in a bear market and I remain bearish. The bonds made a marginal new low but did not follow-through and bounced back a bit to close slightly positive The short-term is improving but not enough to move from neutral. Medium-term I remain bearish. The XAU had a modestly negative day but has not violated any support. The momentum indicators remain positive and no support levels have been violated. As such I will continue to give the benefit of the doubt to the bullish case and remain positive in all time frames.

QQQ traders sold short and ½ position per the morning hotline at 46.85. They closed at 46.15. Keep your stop at 50.54 and make sure to call the early morning 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.       

The chart below shows the possible triangle discussed in the Elliott wave section.