DAILY TECHNICAL MARKET COMMENT

By: Larry Katz

May 9, 2001

*These are preliminary numbers and will be adjusted tomorrow

The DJIA lost 52 points and the S&P lost 2.42 points on 989 million shares. The A/D line added about 150 units. The new highs eased slightly and the new lows expanded slightly. The Russell 2000 gained 2.13 points. The short-term is neutral. The medium-term is positive. The Value-line gained 3.65 points. The short-term is neutral but looks close to beginning a correction. The medium-term is positive. The NASDAQ Composite gained 24 points and the NASDAQ 100 added 33 points. They are neutral short-term. The medium-term is neutral but with a positive bias.  The DJTA closed with modest gains. It is neutral both short and medium-term. The DJUA and UTY closed sharply lower and the next leg of the decline looks to be underway. They are negative in all time frames.

The S&P moved lower but held initial support at the .383 retracement of the rally from last Friday’s low to Monday’s high. The hourly chart from Monday looks corrective at least so far. The fact that we have held support and have declined in corrective fashion leaves open the possibility that the decline from Monday’s high is a second wave from last Friday. While this is clearly a possibility and as long as the S&P holds above the 1244 level this will remain a viable count, the fact is that there are any number of possibilities in regards to the S&P and its short-term wave structure with this just being one of them. The market will, as it always does, tip its hand in due time. Until it does the best course of action is to do nothing until it does. The DJIA moved slightly below initial support levels but the decline from Monday’s high is so far a three-wave pattern on the hourly chart. Yesterday I presented a number of possible counts for the DJIA and so far not one of them has been invalidated or confirmed. I expect the DJIA to resolve its uncertainties in due order just like the S&P but until it does we have to be patient. The decline from May 2 to May 4 on the NDX hourly chart can be counted as a five. If it was a five then the rally from Friday is a “b” or second wave and should be followed by another five fro wave 3 or “c”. So far the pattern from last Friday’s low has been anything but impulsive both on the upside but more so from Friday‘s high. It may unfold as impulsive as the daily chart remains down but so far it looks a lot more corrective. That said either wave 2 or “b” is not over or what looks to be a five is not a five but instead a “b” or X wave from April 25. Right now the NDX is in no mans land. A move below 1880 would likely confirm the next wave down from May 2 and more likely April 20 is underway while a move above 1980 would confirm that wave “c” from April 25 was in progress. Support: S&P; 1253-1254, 1244-1246, 1230-1232, DJIA; 10,810-10,822, 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, 11,220-11,240, NDX 1980, 2047-2055.

The DJIA an the S&P lost some ground yesterday but both closed well off the early lows and about  in the middle of the days range for the second day in a row. The session was marked by another lo volume day although it did increase sharply over Monday, which was the third lowest day of the year. Breadth was slightly positive reversing Monday’s loss.  The new highs eased a bit but were still respectable. However, they are still diverging and remain well below peak levels seen on April 27. The new lows expanded, but only slightly so and remain benign. The NASDAQ averages reversed Monday’s losses and closed higher and not far from the highs of the day.

The CBOE put to call ratio moved up a bit and was borderline neutral. The OEX ratio moved lower and was neutral. The breadth oscillator is overbought and so too is the volume oscillator. The 3-day oscillator is neutral but weak. The McClellan oscillator is neutral but showing negative divergences. The 10-day and open 10-day Arms are neutral but high neutral. The 5-day Arms is close to oversold. The 21-day Arms is neutral but closer to overbought. The new 10-day Arms is negative. The daily range oscillators are still close to overbought. The daily trend oscillators are neutral but close to turning down.

Although closing lower the selling was fairly well contained. The DJIA slightly broke near-term support but the S&P managed to hold its respective level. But in spite of the markets ability to hold support it showed very little on the upside either as the rally attempts during the day were fairly weak. On the one hand the market is giving ground but only grudgingly so while on the other hand it can’t seem to rally much either. Sounds like an ideal set up for a near-term trading range. The CBOE put to call ratio has been neutral to slightly negative the past couple of days but nothing excessive in either direction. The Rydex ratio, however, has weakened further and reached its worst level for the post April rally. The asset level in Ursa and Arktos remain precariously close to their lows seen in late January showing that there is very few willing to be short at least via this vehicle. The asset level in Nova, which is the bullish play on the S&P hit its highest one day reading since mid February. From its April 4 closing low the S&P has gained approximately 14.5%. At the same time the assets in Nova have increased 84.1% and declined in Ursa by 31.9%. Some of the rise in the ratio can be attributed to price appreciation but from these numbers we can see that most of it is due to a strong move back to the bullish camp. The momentum picture has not changed much from yesterday. We have overbought readings on the breadth and volume oscillators with the latter continuing to diverge. The McClellan oscillator has begun to weaken an has left a minor divergence in place. The 10-day and open 10-day Arms are neutral but closer to oversold and could add some support over the very near-term. However, the new 10-day Arms is negative.  My short-term view has not changed and this comment from yesterday’s letter sums it up best, “. 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.” The medium-term view has not changed either and for now I am going to remain neutral but with the idea that a sharp decline over the short-term could set up for a better entry point. Long-term I remain bearish. The bonds should find support just above 101 basis the June contract. A break of that level would question the bullish short-term position of the bonds and could turn the medium-term picture back to negative. Until that occurs I remain bullish on the short-term and neutral on the medium-term. The XAU is holding where it has to hold to keep open the possibility that a five-wave pattern from the April 3 low may yet unfold. However, to do so the XAU needs to keep moving higher as there is little room for error from these levels. Needless to say the next few days for the XAU look important. I moved to neutral yesterday in all time frames and for now that look to be he best place to be.

QQQ traders are flat.  Make sure to call the early morning hotline for any changes. Rydex switchers are 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.