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The
ULTRA Market Timing Letter
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Sep
03, 2004
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SPX Technical Price Analysis
SPX Nearing Top of Channel
The SPX is nearing the top of the descending channel that has been in effect since Feb04. We would not be surprised to see some rally next week to, and slightly above R2, as the SPX makes its last gasp of strength before submitting to seasonal weakness.
If the SPX can significantly break out of this channel to the upside on a weekly closing basis, then we will become long-term bullish for the stock market. If this occurs in the Sept-to- Mid-Oct timeframe, it will make for a difficult decision. Buying highs in Sep/Oct is rarely a good decision.
We believe that it is likely that the SPX will drop back down to test S2 in the bearish Sep/Oct months.
However, If selling accelerates into a panic, S2 will fail and the SPX will likely drop immediately to S4 (1000) and possibly as low as S3 (950). [S3 and S4 are the levels of old tops which often provide support in a falling market].
The scenario of an SPX drop to S4, then a bounce back up to retest S2, followed by a final sell-off down to S3 in Late October would set up a fantastic buying opportunity.
SPX Summary
It is difficult to imagine the market rallying during September but it's certainly not impossible. We think the SPX is nearing a significant top. We do not think that chasing highs is a wise move considering the seasonally bearish period we will enter next week.
September after Labor Day
For all months, the first and last few days are relatively bullish. However, September is historically a very bearish month.
Historically, If you were invested in the Nasdaq 100 (NDX) during the month of September except for the first three and last two trading days of the month, your investment would have appreciated at a minus 25% annual rate. That is a very negative tendency that should not be ignored. Unless you have a very good reason, it pays to be in cash during September.
NASDAQ 100 Technical Price Analysis
Sincerely,
Steve Hunter, ULTRA Financial Systems Inc.
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