I always assume the market will be symmetrical until I'm proven otherwise. As you can see above, the period from Dec02 to present was almost exactly symmetrical to the period from Dec02 moving backward in time. Assuming that symmetry continues puts the SPX at a high of nearly 1200 (R1) in 2004. I expect this to occur around Mar/Apr04 and then the SPX should correct significantly. Symmetry calls for a drop back to S4 at 950. I have a feeling that correction will instead stop at around 1000 probably in the Late Aug04 to Early Oct04 timeframe.

There are other non-fundamental reasons to be bullish for 2004 as well. It's a presidential election year which historically is positive 75% of the time for the SPX (although 2000 was a down year). Also, we are only 0.75 years into this bull cycle. The average bull cycle is 3.6 years so if this truly is a new bull market it should have a long way to run.

January is a historically bullish month with the SPX appreciating at an 18% annual rate. The first three and last two days of January are very bullish appreciating at a 68% annual rate.

However, you take away the first three and last two trading days of January, the rest of the month is below average. During that period the SPX historically appreciates at a +6.5% annual rate with 6%+ losses in 2002 and 2003.

I think the SPX is going higher in 2004 but no market goes straight up. This market is due for some type of consolidation or correction. My non-mechanical accounts are sitting on 10%+ gains in Rydex Nova since going long on 11/21/03. I will be selling these positions if S1 fails or at the close on Tuesday 01/06/04 which is the end of the bullish seasonal period. However, if there is a collapse through S1 that falls all the way to S2 I will likely hold my SPX positions and sell into the bounce off S2.

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Nasdaq 100 Technical Price Analysis

NDX Break of Ascending Right Triangle (ART)

The NDX broke out above an ART (bound by R1/S1) that implies a run to 1500 which lies 30 points higher. We still have two trading days left with a bullish bias so odds do favor the NDX testing 1500. However, I expect 1500 to provide significant resistance and will probably signal the end of this move in the short-term.

NDX Relative Strength

The NDX has been relatively disappointing during the bullish end-of-year period. If NDX-RS breaks down below S2, I think it will be a very negative sign for the stock market as a whole.

However, the NDX-RS is near S2 where it has turned higher many times in the last year so I wouldn't be surprised if the next couple days have a relatively strong NDX.

Summary

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Russell 2000 Technical Price Analysis

RUT Running out of Steam

With the SPX and NDX both at the top of their uptrending channels the RUT has been relatively week in Dec03. Currently, it is in the middle of its channel.

RUT-RS fell below a well defined uptrend line S2 that had been in effect since mid-March 2003.

 

Summary

I will continue to avoid the RUT with non-mechanical capital due to the recent failure of S2.

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XAU Technical Price Analysis

Huge Head-and-Shoulders Bottom (HSB)

The HSB still calls for an eventual move in the XAU up to 160. The neckline (NL) is currently at around 90. There is still at least a 50% chance that NL will be retested. It is not likely that the XAU will continue to rise at the rate supported by S1. There will be a correction and when it comes it could be spectacular. If you've forgotten how fast the XAU can move downward take a look at A->B for a reminder.

 

Weekly Chart Shows a Steep XAU Uptrend Line (No Change)

As long as S3 remains intact, the XAU will keep rising. If S3 fails to support, a drop to 90 retesting NL becomes very likely.

(Note: It's hard to believe that after 1.5 months my commentary on the above chart remains unchanged.).

Summary

The XAU is extremely volatile. A drop back down to 90 could occur at any time. I will be buying the XAU with non-mechanical capital upon a retest of NL at 90.

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Last Report

Sincerely,
Steve Hunter, ULTRA Financial Systems Inc.

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