DAILY TECHNICAL MARKET COMMENT

By: Larry Katz

May 8, 2001

*These are preliminary numbers and will be adjusted tomorrow

The DJIA lost 16 points and the S&P 3 points on 927 million shares. The A/D line lost about 140 units. The new highs expanded a bit and the new lows eased. The Russell 2000 lost 3.25 points. The short-term is neutral but still on the overbought side of the equation. The medium-term is positive. The Value-line lost 6.22 points and closed near the low of the day. The short-term is neutral but still overbought. The medium-term is positive.  The NASDAQ Composite lost 18 points and the NASDAQ 100 lost 28 points. They are neutral short-term but look to be on the verge of a correction. The medium-term is neutral but with a positive bias. A decline could turn it positive. The DJTA closed modestly lower. The short-term is neutral. The medium-term is also neutral. The DJUA and UTY closed lower. They are negative in all time frames.

The S&P did not move above last weeks high yesterday leaving the very short-term wave count in the air and exactly where they were yesterday. The rally from May 1 to May 2 can be counted as wave 5 from April 4 provided that the fifth wave up from May 1 ended on a small failure. If that is the case then the S&P most likely completed a “b” wave of a flat from last Wednesday’s high yesterday and a move back below the low of May 3 is underway. The other possibility is that the rally into May 2 was a “b” wave of an irregular. Under this count it is possible to count the decline from May 2 to May 3 as a five on the hourly chart and as a “c” wave. Since we are in a possible fourth wave on this average it is also possible that what we saw yesterday was a “b” wave of a triangle with wave “a” itself an irregular. This would keep the S&P in a trading range for a few more days prior to a thrust to new highs to complete the pattern from April 4. The last and most bullish count has the S&P about to enter a third wave acceleration from April 25. The DJIA may have ended wave v from April 4 early yesterday stopping just below the 11,000 resistance level, which is where wave v was .618 wave 1. A move above yesterday’s high of 10,995 would indicate the strong likelihood that wave v was extending and was entering a third wave from last Thursday’s low. There are also two alternate counts. One is extremely bullish and that has the DJIA about to enter a third of a third from April 25. The other possibility is that the DJIA is still in wave 5 of iii from April 4 and is tracing out a diagonal triangle from April 25 with yesterday’s rally wave “c” of the pattern. This is the least likely of the counts but one that is still a possibility. The NDX is either about to enter a “c” or third wave from April 20 or a “c” wave from April 25. A move below yesterday’s low of 1889.80 would favor the former while a move above 1981 is needed to confirm the latter.  Support: S&P; 1253-1254, 1244-1246, 1230-1232, DJIA; 10,840-10,847, 10,775-10,785, 10,630-10,640, NDX; 1884-1887, 1854-1859, 1720-1740. Resistance: S&P: 1272-1275, 1291-1295, DJIA; 11,000-11,030, 11,2220-11,240, NDX 1980, 2047-2055.

The market ended the session with modest losses but above the mid session lows with the DJOIA and the S&P closing just below the middle of the days range. They did trace out a small reversal pattern as an early morning rally failed and we also saw some modest weakness late in the session as a mediocre rally attempt also failed. Volume was extremely low and in fact the lowest level in three weeks. Breadth was slightly negative about in line with the averages. The new highs did expand over Friday but are still well below their peak for this rally seen on April 27. The new lows were extremely low. The NASDAQ averages closed much closer to the lows of the day but overall were in a fairly tight range.

The CBOE put to call ratio moved lower and was back to negative levels. The OEX ratio moved higher and was bullish. The breadth oscillator moved higher and is overbought. The volume oscillator is also overbought. The 3-day oscillator turned down and is on a sell alert. The McClellan oscillator moved lower and is close to confirming a negative divergence. The 10-day and open 10-day Arms are neutral. The 5-day Arms is neutral. The 21-day Arms is neutral but closer to overbought. The new 10-day Arms is below .80 and remains negative. The daily range oscillators are close to overbought. The daily trend oscillators are neutral.

The market tried to extend the rally but sold off soon after the opening leaving a minor reversal patter in its place. We are still faced with unconfirmed new highs in the DJIA as both the S&P and NYSE Composite failed to close above their May 1 closing high nor move above their print high seen on April 30 and May 3 respectively. They are not far away and modestly positive day would confirm but at this point they are diverging. So too are the NASDAQ averages leaving the DJIA as the only major market average to make new rally highs. Yesterday did little to clear up the very short-term wave counts but they should tip their hand soon.  The CBOE put to call ratio moved sharply lower and was bearish. This is completely opposite of what we saw on Friday as the ratio moved higher into a strong up session. The Rydex ratios showed some very minor improvement but remain short-term negative. The momentum picture has not changed much at all from Friday. The breadth oscillator is overbought but has been making higher highs. The volume oscillator is overbought but diverging and the A/D ratio is also diverging. The 3-day oscillator did weaken a bit and has moved to a sell alert status. The McClellan oscillator turned down from overbought levels and is close to confirming a negative divergence and sell signal. The Arms indexes are neutral but the open 10 is closer to oversold. The bottom line is that nothing has changed from yesterday. We are either in the process of completing a short-term top that could lead to a fairly brisk decline or we could be close to confirming that the recent activity has been nothing more than a high level consolidation.  I am slightly favoring the topping process camp but I do not see enough evidence, at least at yesterday’s close to confirm and for me the best place to be is neutral. Medium-term I am staying neutral awaiting a better entry point. Long-term I remain bearish. The short-term position of the bonds remains bullish but we need to begin to hold or that could slip. Medium-term I am neutral but with a negative bias. The XAU still has a chance to trace out a five-wave advance from the April 3 low. However, short-term momentum is close to rolling over and turning down. A failure from here leaves a potentially negative pattern in place. I am moving to neutral in all time frames as a precautionary measure.  

QQQ traders are flat. Make sure to call the early morning hotline for any possible strategies. Rydex switchers sold ½ of their 20% precious metals position per the Noon pacific hotline. We are now holding a 10% precious metals and 10% OTC position. Make sure to call the Noon Pacific hotline for any changes. The morning hotline will be on a 7:15 AM pacific.