DAILY TECHNICAL MARKET COMMENT

By: Larry Katz

May 15, 2001

*These are preliminary numbers and will be adjusted tomorrow

The DJIA gained 56 points and the S&P added 3 points on 846 million shares. The A/D line added about 200 units. The new highs eased slightly and the new lows expanded slightly. The Russell 2000 lost less than a point. The short-term is neutral but looks close to a correction. The medium-tem is positive. The Value-line lost just under a point. The short-term is neutral but looks close to a correction. The medium-term is positive. The NASDAQ Composite lost 25 points and the NASDAQ 100 lost 26 points. The short-term is negative. The medium-term is neutral but with a positive bias. The DJTA closed with a very small loss. The short-term is neutral. The medium-term is neutral, but that could change very soon. The DJUA and UTY close with modest gains. They are bearish in all time frames.

The S&P was able to hold above last weeks low. That keeps the weekly chart positive and keeps open the possibility that it is still in a fourth wave from April 4, which in turn would allow for a move back above the early May high. If the S&P is in a fourth wave from April 30 then it (wave 4) would have to be developing as a triangle. If that is correct than the S&P most likely completed wave “c” of that pattern yesterday. The alternate count is that the S&P completed its five-wave advance from April 4 on May 2 or May 7 and any rally over the very near-term would be a “b” wave. Again as long as the weekly chart remains positive we have to allow for the possibility of a modest new high to complete the post April 4 pattern. A move below last weeks low of 1240.79 would turn the weekly chart down. The DJIA like the S&P held above last weeks low allowing for the possibility that wave 5 from April 4 may extend. And as long as last weeks low of 10,774 holds we have to allow for a new high in the DJIA. A break of that level confirms that the post April 4 rally is complete and that a short-term decline is ahead for the DJIA. The NDX moved towards the April 25 low but did not move below it. I am still of the view that April completed the first wave of a larger corrective pattern of the April 4 to April 20 rally. Whether wave “b” or X from that low is over is another story. I am going with the idea that it is and that it either ended on May 2 as a simple three or that May 10 completed either a b” or X wave triangle from April 25. In either of those cases the NDX is expected to move below the April 25 low to complete the pattern from April 20. The other possibility is that the NDX yesterday completed wave “b” of a larger “b” wave triangle from April 25. This would set the stage for a fairly strong “c” wave rally back towards the upper end of the recent trading range. The other possibility in regards to a triangle is that yesterday completed wave “c” of a triangle from the April 20 high. This would ultimately resolve in a short, sharp thrust above the April 20 high to complete a more complex a-b-c from April 4. Support: S&P 1240.79, 1230-1232, 1200-1203, DJIA; 10,774, 10,375-10,380, 10,180-10,200, NDX; 1720-1740, 1590-1608. Resistance: 1258-1260, 1270-1275, 1295-1300, DJIA; 10,910-10,920, 11,000-11,025, 11,200-11,250, NDX; 1860-1864, 1900-1910, 1982.

The DJIA and the S&P spent most of the day drifting aimlessly but did close higher on some late buying with the averages closing near the high of the day. Volume though was extremely low and in fact was the lowest total of the year. The A/D line was barely positive and the new highs also contracted from what we saw on Friday. There was also a slight expansion in the new lows but nothing serious at least not yet. The NASDAQ averages closed lower and lagged again but did participate in the late rally cutting their losses nearly in half and closing about mid range. 

The CBOE put to call ratio eased slightly and was borderline negative. The OEX ratio dropped off sharply and was bearish. The breadth and volume oscillators continued to correct and are neutral. The 3-day oscillator is neutral but weak. The McClellan oscillator is neutral but did have a very minor net change pf less than 3 points. The 10-day and open 10-day Arms are slightly oversold. The 5-day Arms is neutral. The 21-day Arms is neutral but closer to oversold. The new 10-day Arms moved above .80 on Friday and has issued another sell signal. The daily range oscillators are moving lower from mediocre overbought levels. The daily trend oscillators are negative.

The market spent most of the session doing little obviously content to bide its time as it awaits the FED meeting and announcement due today. It is widely expected that the FED is going to cut rates by ½ point at its meeting. This is most likely factored into the market and is reflected in the current price. If we follow the script of other meetings this year we should see a very aimless session leading up to the announcement followed by some increase in volatility with a number of directional changes. Since a 50 basis point rate cut is most likely already factored into prices any positive reaction should be short lived. The market looks to be close to completing a short-term topping process. The DJIA and the S&P did hold above last weeks low and from an Elliott perspective hat keeps open the possibility of a modest new high above the early May peaks before the process is complete. Most of the short-term indicators are either neutral or negative. The daily trend oscillators have just turned down and the range oscillators such as RSI have also turned down from near overbought levels and have confirmed negative divergences in place. The new 10 Arms has issued another sell signal as of the close on Friday. The CBOE put to call ratio has not been excessively negative but it is nonetheless slightly negative as is the Rydex ratio. About the only short-term indicator that is positive is the 10-day and open 10-day Arms. The McClellan oscillator had a very small net change yesterday of less than 3 points. Very minor changes in the McClellan oscillator usually precede a big short-term move in price. Is it a coincidence that today is the FED meeting? Nearly all of the indicators are negative or close to negative and I am still of the view that the DJIA and the S&P are close to completing a short-term top. However, as discussed I cannot rule out one last shot at a modest new high to complete the pattern and until we get conformation from price I am going to maintain a neutral rating while keeping the short-term sell signal in place on the NDX. . I am neutral on the medium-term with the idea that a short-term decline could set up for a good medium-term entry point. Long-term I remain bearish. The bonds closed slightly higher. They could bounce a bit further but they remain negative on both the short and medium-term. The XAU spent most of the session in negative territory but rallied late in the day and closed near the session high.

There is still important resistance in 61.50-62 level that needs to be overcome but the indicators short medium and long-term remain bullish and for now so do I.

QQQ traders are holding a 50% short position from 46.20. They closed yesterday at 44.82. Keep the stop at 48.20 and 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.           

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