DAILY TECHNICAL MARKET COMMENT

By: Larry Katz

May 16, 2001

*These are preliminary numbers and will be adjusted tomorrow

The DJIA lost 4 points and the S&P ended flat on 1.03 billion shares. The A/D line added about 850 units. The new highs and the new lows expanded. The Russell 2000 gained 2.99 points. The short-term is neutral but weakening. The medium-term is positive. The Value-line gained 6,89 points. The short-term is neutral but weakening and not far from a sell signal. The medium-term is bullish. The NASDAQ Composite gained just under 4 points and the NASDAQ 100 gained 2 points. The short-term is negative. The medium-term is neutral. The DJTA closed slightly higher. The short-term is neutral but weakening. The medium-term is neutral but that is poised to turn soon. The DJUA and UTY closed lower giving all of Monday’s gains. They are negative in all time frames.

We are still faced with one of two possibilities in the S&P from April 4. The first is that a five-wave advance concluded on May 7 with wave 4 from April 30 to May 4 unfolding as an irregular. The other possibility is that the S&P has been and remains in a fourth wave from April 30 that is unfolding as a triangle. Of course, both of these counts are assuming that the post April 4 advance is going to ultimately be a five. If the triangle is correct then Friday completed wave “c” and the rally from Friday’s low is all or most of wave “d”. If correct this pattern should result in one final push above the early May high to complete the post April 4 advance. As long as the weekly chart remains positive this will remain a valid count. A move below last weeks low of 1240.79 would turn the weekly chart down and confirm that the post April 4 rally is behind us. The DJIA can be counted as having completed five-waves up on the daily chart from April 4 at the May 7 high. The alternate count is that wave 5 is subdividing and that Friday completed wave 2 from May 4. The weekly  chart of the DJIA from April 4 remains positive and as long as last weeks low of 10,774 holds this will also remain a valid count. However, it is also possible that the May 4-May 7 rally in the DJIA was a “b” wave of a larger fourth wave triangle from either April 30 or May 1 and that the rally from Friday is all or part of a “d” wave. The fact that hourly chart from Friday’s low is sloppy and corrective looking supports this count if the bullish count is correct as opposed to the idea that Friday completed a second wave since a third wave would be expected to unfold in impulsive fashion. The NDX rallied right to initial resistance and failed. My preferred count is that the April 20 to April 25 decline completed the first wave of a larger corrective pattern from April 20. It is possible that the May 10 high completed a triangle from April 25. This triangle could be an X wave from April 20, with the decline into Friday wave “a” and the rally from Friday wave “ b” of a second three from April 20. The alternate count is that Friday completed wave “b” of a “b” wave triangle from April 25 allowing for more sideways action within the trading range prior to a thrust below the April 25 low to complete the correction from April 20. The more bullish count short-term is that the NDX has been in a large “b” wave triangle from April 20 with Friday completing wave “c” of the pattern. This would set the stage for a thrust above the April 20 high to complete a more complex pattern 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: S&P; 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 market ended a semi volatile session about flat with the DJIA slightly lower and the S&P up less than one point. They did, however, close poorly and sold off late in the day closing closer to the lows than the highs. Volume picked up a bit from Monday but was still modestly light. Breadth on the other hand was fairly solid and we did see a modest expansion in the new highs. This does suggest that participation is decent. The NASDAQ averages closed near unchanged as well after being up sharply and ended near the low of the day.

The CBOE put to call ratio moved up sharply and was bullish. The OEX ratio moved lower and was bearish. The breadth and volume oscillators are neutral. The 3-day oscillator is neutral. The McClellan oscillator moved up a bit and is neutral. The 10-day and open 10-day arms moved higher and are bullish. The 5-day Arms is neutral but closer to oversold. The 21-day Arms is neutral but closer to oversold. The new 10-day Arms is on a sell signal at .85. The daily range oscillators are headed lower from mild overbought levels. The daily trend oscillators are negative.

The market got what it was looking for and the reaction was almost text-book. Volatility, intra day at least did pick up a bit as we saw a number of price swings following the announcement. The end result at least as far as price was concerned a near non event as most of the averages closed near the unchanged level. Now that the FED is out of the way we now are faced with Friday’s options expiration to deal with, which can and usually does cause some minor distortions. The wave structure has not resolved one way or the other at least as far the S&P and the DJIA and further sideways or trading range behavior is possible. I also see the same possibility as far as the NASDAQ averages are concerned. The technical indicators remain mixed with some such as the trend oscillators negative and others such as the 10-day and open 10-day Arms positive. Most are neutral but with a topping bias such as the McClellan oscillator and the breadth and volume oscillators but these indicators have eased enough to support a final pop to new highs in the DJIA and the S&P. As long as last weeks low on the S&P and the DJIA hold this trading range could ultimately resolve with a final fling to new post April 4 highs. That would likely set the stage for a bigger decline to correct that move. A break of last weeks low would confirm that the top is already in. Short-term I am going to remain neutral on both the DJIA and the S&P and bearish on he NDX. A decline could turn the medium-term picture positive depending on how it unfolds while a rally to new highs could turn it negative. For now I am neutral.  Long-term we are still in the throes of a bear market and I remain negative. The bonds close lower and at new post March lows. The decline from last weeks high can be counted as a completed or nearly completed five-wave decline that could allow for a bounce. However, the short and medium-term remain bearish. The XAU may be in a fourth wave from the April 3 low. This would allow for some further corrective or sideways action prior to a short move to new post April highs. There is support under this count at between 55-56. For now the indicators are positive and I remain bullish in all time frames.

QQQ traders are holding a 50% short position from 46.20. They closed yesterday at 45.15. 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.       

The chart below shows the three possible counts on the NDX discussed in the Elliott wave section of this letter. Alt count 1 shows the “B’’ wave triangle from the April 25 low while alternate count 2 shows the larger “B” wave triangle from April 20.

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