The ULTRA Timer Report

Issue #70

The ULTRA Timer Report

Tuesday, Jan 02, 2007

SPX Technical Price Analysis

SPX Nearing Important Support (S1)

The SPX appears to be forming a small Head-and-Shoulder Top (HST) that would be confirmed with a close below NL. Just below NL is the lower boundary of a well-defined up-trending channel (S1) which we consider more significant.

Early January Seasonal Bias

Historically (since 1942), the first three trading days of January are bullish with 65% winners and the SPX appreciating at an annual rate of +55%. In recent years (since 1990), the next ten trading days (4-13) have a bearish bias with the SPX appreciating at an annual rate of -10.3%. Since 2000, the SPX has appreciated at a -19.3% rate with only 29% winners during days 4-13.

Considering the seasonal bias, a run back to up 1430 (R2) in the next few days followed by a drop back to S1 appears likely.

A failure of S1 would imply a drop of about 50 points (the width of R1/S1) to 1360. If the SPX is able to overcome R2, a move to R1 would become likely.

This market is far overdue for a 10-15% correction and so our plan will be to sell into the next close that is above 1325 at our fund cutoff hoping to either repurchase at S1 near 1410 or get lucky and be in cash as S1 is taken out in a big drop.

Wednesday Morning Update:
The NDX and RUT both gapped open this morning with the SPX rallying exactly as we'd thought back up to R2 at 1430. We expect R2 to turn the SPX back down and those gaps to fill in early January. Therefore, we'll be selling to 100% cash at today's close. The only cases that would keep us long are if either the SPX were to rally clearly above R2 (over 1435) or if the rally were to fail resulting in the NDX gaps closing during today's session.

The Year before the Presidential Election year has
Recorded 16 Winning Trades in a row.

Well almost... One trade back in the 1940's was exactly a 0% gain. The average gain per year for the SPX was 18.1% and that is about what we expect for 2007. (Tested with ULTRA's PRES system).

NASDAQ 100 Technical Price Analysis

Confusing Action in the NDX Price Chart

Last time we said, "as long as S1 does not fail we expect the NDX to move higher" which it did for a short time. S1 failed at 1780. Then the NDX broke out above a small triangle which was a false break. And now the NDX has dropped down to support provided from an old top (S2). We've said it many times, the NDX is noisy and prone to false breakouts. But these recent failures cannot be viewed as positive for the NDX or the market as a whole..

NDX Relative Strength (NDX-RS=NDX/SPX)

Last time we said, "If S3 were to fail we'd consider it a sign that the market in general is going to correct. We'd also consider it a signal to exit NDX related funds". S3 obviously failed on 12/07/06 at NDX 1777 which in addition to the S1 failure was a very obvious sell signal for the NDX..

The NDX has now formed a line of resistance R3. We won't consider NDX positions until R3 is overcome to the upside.

(The chart above can be produced with ULTRA via the "Graphs" menu item with NDX in the "Database Item or EDF Name:" field and SPX in the "Divided by:" field).

RUT Technical Price Analysis

RUT has Broken down Below S1 and has Formed an Ascending Triangle (AT)

The next significant move in the RUT will be determined by which way the break out of the AT occurs.

RUT Relative Strength (RUT-RS = RUT/SPX)

RUT-RS broke down below S3 and has formed resistance R3. A break above R3 would be a bullish sign for the RUT.

(The chart above can be produced with ULTRA via the "Graphs" menu item with RUT in the "Database Item or EDF Name:" field and SPX in the "Divided by:" field).

Stock Market Summary

For our funds not controlled by mechanical methods, we're currently 100% long SPX related funds. Per the statements in the SPX section above, we'll sell to 100% cash at the next close above 1325 as the seasonal bullish bias will have expired and the market is sorely due for a significant correction. If we don't get that little bounce we'll liquidate at a loss if the SPX is obviously below S1 at our fund cutoff time.

XAU Technical Price Analysis

XAU Breaks Above R2

Last time we said we'd sell near R1 and the 11/30/06 opening gap made that decision obvious. XAU gaps almost always fill. In fact the recent drop back to S2 closed the 11/24/06 gap.

The XAU has now broken out above R2 after bouncing off support S2. Therefore, we'll reenter our XAU positions on Wednesday expecting another run to R1 near 150. We'll abandon this position at a loss if the recent lows are taken out.

Interest Rate Analysis

US 5-year Treasury Note Yield (TN)

The drop in rates appears to have stopped for a while as the TN yield has broken out above R1.

In the daily chart, the Government Bond Total Return Index (GBT) has broken down below S2 implying rising rates for a while.

In the weekly chart of GBT, we are testing S4 after being turned down by R4. We expect S4 to fail implying a further drop to S3 at which point rates should begin to drop again and we'll therefore become buyers of GBT. GBT can be traded via the ETF whose symbol is TLT on Yahoo.

Note:
The ULTRA symbol GBT consists of TLT for as long as it exists with the older data prior being a highly correlated total return index of long-term treasury bonds. Daily TLT quotes are adjusted to match the older data series.

ULTRA Recommended Strategy Risk

As we said for most of 2006, we expected double digit gains in 2006 for the SPX which did occur.

We still expect SPX gains in 2007 to approach 20% and therefore recommend that aggressive strategies designed to capture and improve upon those gains should be utilized by investors willing to take on risk.

We continue to believe that as your annual return goals increase, your odds of high drawdowns increase, and your overall odds of attaining those goals decrease. Investors should use great caution when following strategies that seek to return 30% (or more) annually. And NEVER risk all your money on ANY single system or strategy EVER.

ULTRA URS STRATEGIES

Our URS STRATEGIES ended up returning 8.7% in 2006 (without including leverage) under-performing their benchmarks which returned 10.7%. Maximum drawdown was reduced to only -3.6% from -11.9% for buy/hold the benchmarks. Currently the strategies are 33% invested.

After two years of poor performance, we'll be removing the RUTVOL from our URS strategies.

As we've said before, these strategies are examples of extremely conservative strategies. We believe most investors should be more aggressive considering the bullish long-term chart patterns that are dictating this market.

URS Strategy Descriptions are HERE.

ULTRA EASY STRATEGIES

Our EASY STRATEGIES are currently 67% invested and ended up gaining 9.6% in 2006 (not including leverage) versus 13.6% for buy/hold the SPX. Drawdown was reduced to an amazing -1.7% compared to -7.7% for buy/hold the SPX.

Two of the three strategies in this set performed very well. However, C_COT1.TXT was locked out of the market due to the COT system not being able to get itself long which lowered overall performance for the EASY strategy set. We want to keep these example strategies as easy and simple as possible but we also want them to be profitable. So we'll be adding the WROC system to C_COT1.TXT via the line:

wroc,1 *D *ND

This keeps the strategy simple and weekly but also eliminates the COT lockout problem with the addition of a system we really like and had tremendous success with in 2006.

EASY Strategy Descriptions are HERE.

Last Report

Sincerely,
Steve Hunter, ULTRA Financial Systems Inc.

ULTRA Financial Systems
PO Box 3938, Breckenridge CO 80424
Phone: 970-453-4956 Fax: 970-453-2467