SPX Technical Price Analysis

SPX Possible Head-and-Shoulders Bottom

The support line S1 failed on a daily basis but as you can see in the chart above, it did not fail on a weekly basis. It looks like the daily failure was obviously a false breakout. So what's going to happen from here?

Symmetry is still perfect around the vertical line labeled SYM. Symmetry now calls for a test of NL and then a significant drop to 950 (S2) such as that which occurred in Sep01. I would not be surprised to see this scenario unfold this summer as the market fears a pre-election terrorist event.

On the other hand, If the SPX can overcome NL, a large Head-and-shoulders Bottom (HSB) would be confirmed. I would expect significant buying to come in after the break of horizontal resistance NL. The expected implications of this pattern would be new all-time highs in the SPX. However, I must say that the small size of the shoulders labeled SH make the pattern less reliable in my mind. If symmetry were to continue, taking the SPX down to near S2 and then NL were overcome, I would be highly confident in new all-time SPX highs in the near future. Needless to say, based on the above chart I would be a HUGE buyer at SPX 950.

Ten years of the BEST4 in Real-time.

Since the early 1980's, savvy investors have known that the 4-5 days at the end and start of each month has a bullish bias. As some of you know, in 1994 I split these cases into three groups:

1. The BEST4 months are February, April, June, October. For these months the strategy is to be long on the last two days of these months and the first three days of the following month (Long five days).
2. The NOVDEC months are November and December which were noted as very bullish. So much in fact that they were enveloped in another bullish period starting on the Monday before Thanksgiving and ending on the third trading day of January (NOVDEC is long five days exactly like the BEST4).
3. The WORST6 remaining months are January, March, May, July, August, September. These were still bullish but less so. For these months you are long on the last one day of the month and the first three days of the following month (Long four days).

Historical results (01/02/42 - 12/31/94)

Looking at history you can see why I came to my conclusion. If one had owned the SP500 during the times BEST4, NOVDEC, and WORST6 has advised and earned interest at the Commercial Paper rate otherwise:

%WIN = Percent of trades that were winners.
%INV = Percent of the time the strategy held the SP500 (at risk).
MDD = Maximum drawdown from the daily account peak.
CAR= Annual return including interest earned at commercial paper rate while in cash.
CARWI = Annualized return while invested in the SP500.

As you can see the BEST4 months outperformed the SP500 while only being invested 7.7% of the time and being in risk-free cash the other 92.3% of the time. While BEST4 was invested the SP500 appreciated at an amazing 52.7% annual rate.

Real-time results (01/02/95 - 04/05/04)

Again, if one had owned the SP500 during the times BEST4, NOVDEC, and WORST6 has advised and earned interest at the Commercial Paper rate otherwise:

As you can see the BEST4 and NOVDEC performed better in real-time than during the historical period while WORST6 performed worse. BEST4 returned 10% annually with a maximum drawdown of only -4.3% while the SP500 had a maximum drawdown of -49.2%.

What if...

What if one had seen the historical record from 01/02/42 to 12/31/94 of BEST4 and NOVDEC (as ULTRA Clients did), and decided to invest using just those two strategies in a leveraged SP500 index fund whose goal was to return 200% of the SP500 (Such as Profunds UltraBull)?

As you can see the combination of BEST4 and NOVDEC would have returned 20% annually (double that of the SP500) while only being at risk about 12% of the time. The maximum drawdown was still less than 10% while the SP500 suffered a nearly 50% drawdown.

Notes:

• Past performance is no guarantee of future success. We never advocate investing all your capital on a single strategy just as you wouldn't invest all in a single stock.
• All testing performed with ULTRA 8's SEAS2 system.

SPX Summary