DAILY TECHNICAL MARKET COMMENT

By: Larry Katz

May 10, 2001

*These are preliminary numbers and will be adjusted tomorrow

The DJIA lost 17 points and the S&P lost close to 6 points on 1.03 billion shares. The A/D line added about 200 units. The new highs were about flat and the new lows expanded a bit. The Russell 2000 lost 1.60 points. The short-term is neutral but weakening. The medium-term is positive. The Value-line lost 2.77 points. The short-term is neutral but beginning to weaken. The medium-term is positive. The NASDAQ Composite lost 43 points and the NASDAQ 100 lost 53 points. The short-term is neutral but is close to turning down. The medium-term is neutral but with a positive bias. The DJTA was flat. The short-term is neutral. The medium-term is neutral. The DJUA and UTY closed higher. They are negative in all time frames.

The S&P declined right to second support levels, which is the .618 retracement of the rally from May 4 to May 7. The decline from Monday is so far corrective on the hourly chart. A break of support near 1245 would likely confirm that the May 2 high did indeed complete the post April 4 advance. I am also seeing the possibility that the S&P is in a fourth wave triangle from the April 30 high with yesterday being all or most of the “c” wave. There are also any number of other possible counts all being quite valid. As stated above, a break of support near 1245 would likely confirm that the correction was in force but until that occurs we cannot rule out a move back to the recent highs or to modest new highs. For now the S&P remains in the neutral zone. The DJIA held the .618 retracement of the rally from May 4 to May 7. That rally can be counted as wave 5 from April 4 but until that support level is broken this cannot be confirmed and until it is confirmed the possibility exists that the decline is nothing more than a second wave from May 4. There has still not been any resolution to the short-term pattern on the NDX with yesterday’s low stopping right at a .618 retracement of the rally from May 4 to May 7. This decline is so far not looking impulsive on the hourly chart, however, the daily chart remains down and that allows for the decline to extend. The decline from May 2 to May 4 can be counted as a five on the hourly chart and everything from that low is looking corrective. This leaves open the possibility that the NDX is tracing out a “b” wave triangle from May 4. if correct we should expect more sideways action as the pattern progresses. A move today below yesterday’s low could confirm that the next wave down from the May 2 high was underway. As is the case with the DJIA and the S&P, the NDX is in no mans land and the key now is to have some patience as the pattern will soon enough make itself known. Support: S&P 1243-1245, 1230-1232, DJIA; 10,775-10,785, 10,630-10,640, NDX; `854-1859, 1720-1740. Resistance: S&P: 1272-1275, 1291-1295, DJIA;, 11,000-11,030, 11,220-11,240, NDX 1980, 2047-2055.

The market closed lower but mixed with the DJIA showing a bit of relative strength and holding up far better than the S&P. The latter was brought down by weakness in technology shares but still managed to close about in the middle of the days range. By contrast, the NASDAQ averages closed much closer to the lows of the day. Volume expanded for the second day in a row as prices moved lower. This sort of confirmed price but the overall level was still quite low. Breadth held up well and closed slightly on the positive side. The new highs were about I line with Tuesday’s total and given the fact that the averages were lower is a slight plus. We also saw a small expansion in the new lows. It was not big but it did confirm the lower prices.

The CBOE put to call ratio was borderline neutral. The OEX ratio moved sharply higher and was extremely bullish. The breadth oscillator is still slightly overbought but did move lower. The volume oscillator is overbought but beginning to roll over. The 3-day oscillator is neutral. The McClellan oscillator is also neutral but is heading down after a minor negative divergence. The 10-day and open 10-day Arms moved higher They are neutral but closer to oversold. The 5-day Arms is positive. The 21-day Arms is neutral but closer to overbought. The new 10-day Arms is negative. The daily range oscillators are beginning to roll over from weak overbought levels. The daily trend oscillators are neutral but close to turning down.

The market has been down for three-straight sessions but so far the selling has been fairly well contained. Yesterday the DJIA, S&P and NDX held important short-term support levels. The rally from those levels was not great but they did hold although the NDX closed much closer to its low. There is also a trend line drawn off the April 25 and May 4 low that is rising right at that support zone, adding some further significance to that area as important to the short-term. Technical indicators remain mixed. The breadth and volume oscillators are just beginning to turn down and are sill overbought, while the McClellan oscillator has already confirmed a negative divergence and is also heading lower. Some of the range oscillators such as RSI are beginning to roll over from weak overbought levels and are finishing off a topping pattern while the daily trend oscillators are very close to turning down. On the other side of the coin, the 10-day and more so the open 10-day Arms are closer to oversold while the 5-day Arms is oversold. This could provide some support to the market or perhaps limit the downside until this situation is corrected a bit. The CBOE put to call ratio has been neutral the past few days but the Rydex ratio, as discussed in more detail yesterday is much more negative. This is especially the case with the assets in the bearish funds such as Arktos and Ursa.  It is possible that what we are seeing from the averages is nothing more than a high level consolidation that when complete will usher in the next wave up from the April low. However, given the position of the majority of the indicators it is much more likely that what we are seeing is the completion of a short-term top. That top may already be in place but until it is confirmed we have to allow for further rally attempts and even a marginal new high in some of the averages. For now the best place to be for the short-term is neutral. I am going to remain neutral on the medium-term with the idea that a short-term decline could afford a good entry point. Long-term I remain bearish. The bonds held near the 101 support level and rallied nicely. The short-term remains bullish and a move to resistance near 104 basis the June contract is expected. I am neutral on the medium-term and viewing this rally as being related to the March- April decline. The XAU although closing off its best levels nonetheless closed well and had a strong session. It has moved close to important medium-term resistance in the 61-61.50 area. However, it did move well above the March 9 high and also turned the momentum indicators positive. While some consolidation is to be expected, given the position of the indicators, especially the short-term ones, it will be important for the XAU to hold onto most of the gains and more importantly for the rally to continue in very short order. In the meantime we have to respect the breakout and the strength of the move until proven wrong. I moved back to bullish in all time frames on the mid day hotline.

QQQ traders are flat. Make sure to call the early morning hotline for any changes. Rydex switchers added a 10% position in the Precious Metals fund. We 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 a 7:15 AM pacific.