DAILY TECHNICAL MARKET COMMENT

By: Larry Katz

May 3, 2001

*These are preliminary numbers and will be adjusted tomorrow

The DJIA lost 27 points while the S&P gained about 1 point on 1.33 billion shares. The A/D line was flat. The new highs eased and the new lows were about flat. The Russell 2000 gained 1.17 points. The short-term is neutral but with a positive bias.  Am moving to bullish on the medium-term. The Value-line gained 11.31 points. The short-term is neutral but with a positive bias. The medium-term is being up graded to bullish. The NASDAQ Composite gained 52 points and the NASDAQ 100 added 43 points. The short-term is neutral and a bit on the overbought side. The medium-term is neutral but with a clear positive bias. The DJTA had a solid day recouping all of the previous two days losses. The short-term is neutral. The medium-term is neutral. The DJUA and UTY closed sharply lower and it looks as though it has completed a top. I am moving to bearish on both the short and medium-term and I remain bearish on the long-term.

The rally from Tuesday’s low on the S&P hourly chart can be counted as a five but only if wave 5 ended on a very small failure. I also see the possibility that the S&P is tracing out a small fourth triangle from Wednesday’s early high. If that is the case then we have only completed waves “a” and “b” of the pattern with some further sideways behavior expected prior to a modest new high. The key for today is the daily chart. As long as we hold above yesterdays low of 1257.70 the rally can extend and a clean five could emerge. A break of that level today would confirm the rally from Tuesday as a completed wave. Where this rally fits in the post April 4 rally is not yet clear. If we do get a five it could be either wave v from April 4 or part of a larger pattern from April 25. If we do not get a five I would have to view it as a “b” wave of an irregular from Monday. The DJIA daily chart from April 25 remains positive so that wave is still in progress. The hourly chart from that low is looking more and more sloppy with the latest rally from Tuesday a clear three-wave pattern. Since the daily chart remains positive it is still possible to see the pattern evolve as impulsive with the DJIA tracing out a number of 1’s and 2’s. However, I am beginning to think that the whole post April 25 advance is developing into fifth wave diagonal triangle that may be close to complete. The daily chart holds the key. The NDX hourly chart from Tuesday’s low at yesterday’s high can be counted as a clean five-wave pattern. This five follows what is a clear corrective rally from April 25 to April 30 and at this time looks to be a “c” wave from April 25. The “c” wave stopped 6 points away from equality with wave “a” and literally a point below the April 20 peak. There are a number of possibilities in regards to just how to count the rally from April 25. A lot will depend on what we see today. A move above yesterday’s high would invalidate a perfect five and allow that the pattern was extending. It would also move it above the April 20 high which in turn would turn the monthly chart from September up. As it stands the two most likely counts is that the rally is a “b” wave from April 20 or the beginning of a new wave from the April 4 low. The fact that the initial rally (April 25-April 30 is corrective and the fact that the April 4 to April 20 rally is also best counted as corrective would argue that the post April 4 advance is developing as a double three with the April 25 low the low of the X wave or the wave that separates the two three’s.  Obviously today is important for the NDX but also for the DJIA and the S&P. Support: S&P; 1257.70, 1253-1254, 1230-1232, DJIA; 10,802, 10,740-10,745, 10,630-10,640, NDX; 1919-1922, 1880-1885. Resistance: S&P; 1272-1276, 1300-1304, DJIA; 10,930-10,960, 110,000-11,050, NDX; 1981, 2090-2100.

The DJIA closed lower and the S&P flat after failing to hold onto sharp early gains. On the plus side they did close well off the days low but the early failure does not look great on the charts especially since the session was accompanied by a decent expansion in volume. Breadth, ended flat after being negative for most of the day. However, the new highs contracted for the second straight day in spite of higher highs in the averages. The actual number is not too bad and could be corrected with a strong day today. However, it is a warning sign and one I will be watching closely today. The NASDAQ averages closed close to the days high and seem to be back in vogue at least for now.

The CBOE put to call ratio moved lower and was bearish but not excessively so. The OEX ratio also moved lower and was on the negative side. The breadth oscillator moved lower and is high neutral but still close to overbought. The volume oscillator moved lower. It is overbought and diverging. The 3-day oscillator moved lower and is back to neutral levels, It is also on a sell alert. The McClellan oscillator moved a bit lower but remains overbought. The 10-day and open 10-day arms moved higher and are neutral. The 5-day Arms is overbought and negative. The 21-day Arms is neutral but closer to oversold. The new 10-day Arms moved back to .80 after being below .80 and is on the cusp of a sell signal. The daily range oscillators are close to the low end of overbought. The daily trend oscillators are still positive but are also easing.

The market put in a mixed performance yesterday with the DJIA and the NYSE Composite closing lower, the S&P was about flat while the technology heavy NASDAQ averages closed higher. It is difficult to tell whether this relative strength shift into technology the past couple of days is just another short-term development or a medium-term development. We have had a few false starts since mid March but it is clearly long overdue. For now though we will approach it one day at a time. The short-term technical indicators remain mixed. Most of the momentum indicators are at or near overbought levels and some volume indicators are showing negative divergences. The breadth oscillator did confirm on Tuesday but only slightly so while the 10-day A/D ratio failed. The McClellan oscillator also confirmed but at the same time reached a modest overbought level near the +150 area. This is overbought enough to suggest a bit of positive momentum but not overbought enough to suggest a strong medium-term thrust has been seen. The 10-day and open 10-day Arms on the other hand have corrected the overbought condition seen near the April 20 peak and are back to neutral. The new 10 Arms has tentatively issued another in a series of sell signals going back to early April. So far those signals have not worked well but we saw a similar series of signals from about mid January into the early February time frame. Short-term sentiment has weakened. The CBOE put to call ratio while not excessively negative is nonetheless negative with the 10-day moving average at its lowest level since early February. The Rydex ratio has also weakened and although not close to the extremes seen in 2000 or even in late January. However, it is at levels that have marked important tops prior to 2000. Moreover, the asset level in both Ursa and Arktos have dropped sharply and are not far from their lows seen in late January. The indicators and the market are approaching an important juncture. Momentum indicators like the McClellan oscillator are at levels that are make or break for the short-term. In their current position they look a bit top heavy and in need of a correction and further weakness over the next few days could turn them negative. On the other hand a few more days of strength could push them to overbought level that could indeed be viewed as medium-term positive. I am going to stay neutral on the short-term with the idea that a decline is not far off. As I said yesterday it is likely that the late March early April time frame did indeed mark a medium-term low for the S&P and the NDX. There is always the risk that the market will not correct but instead keep on moving higher. If that is the case we will either miss it or be forced to chase it. Neither of those choices appeals to me very much. Even so I am going to remain officially neutral but with a more positive bias awaiting a better entry point. On a long-term basis I remain bearish. The bonds had another decent day. The short-term has turned positive and further gains are expected. I am going to move from bearish to neutral on the medium-term. The XAU held up well closing near flat after being down sharply early in the session. It is at a very important spot and the next few days will be important. A modest correction to support near 54 would not hurt the bullish case but much further weakness would. The indicators remain positive. I remain bullish in all time frames at this time.

QQQ traders are flat. Stand aside for the morning 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.