The ULTRA Timer Report

The SPX has formed a Symmetrical Triangle(ST) which is also a Head-and-Shoulders Bottom (HSB). The next significant move in the SPX should be in the direction of whichever of R1 or S1 is overcome. If R1 is overcome we'll expect an attempt to R2 over 1340. If S1 fails we'll expect a drop to 1150 (see below). One good thing about the ST in the daily chart is that now we'll have a daily clue as to the next significant move in the SPX whereas before we were depending on the weekly chart which can only provide signals on a Friday close.

The level 1150 (S3) should provide strong support. For most of 2004 it was strong horizontal resistance that was overcome and retested in April 2005 and October 2005. In our opinion 1150 is the worst case for the SPX in the near future.

For the SPX since 1990, the last four days of July have resulted in 63% winners with an annualized return (CARWI) of +67%. Since 2000, there have been 67% winners with a CARWI of +143%.

For the SPX Since 1990, August has resulted in gains 50% of the time with an annualized return of -15.2%. The first three days in August have only resulted in gains 37.5% of the time with an annualized return of -56.3%.

Therefore, well-defined seasonal patterns would call for the rest of this week to be a big gainer taking out R1 and then the first three days of August being a correction back down to R1 as a retest. However, it's difficult to imagine a powerful rally getting underway in August/September so it seems the market would likely just move sideways in a trading range above R1 until late-October when a year-end rally would send the SPX up to test R2.

As far as getting some help from a couple of our mechanical systems, when both the AIBB (bearish individual investors) and DCR (DJIA oversold with a tick up) systems are on buy signals, the SPX records gains 73% of the time with the SPX gaining at an annual rate of +34%. This buy combination occurred on 7/18 at SPX 1236.

Having said all that, it seems the best move for the rest of this week is to hold as long as S1 is not violated on a daily closing basis. However, we'll be extremely tempted to sell to 100% cash into Friday's close to avoid the first few days of August..

The weakness in the NDX is worrisome for the general market. The NDX has already formed and confirmed a Symmetrical Triangle. And has already fallen significantly thereafter. The NDX seems to have found some minor support at 1450. If 1500 could be overcome we'd have a tiny double bottom that might end up being significant. But considering the bearish seasonal months of Aug, Sep, Oct that we are approaching we do not foresee taking any NDX positions in the near future.

The NDX-RS recently broke down below very well defined horizontal support (S3) in the weekly chart.

(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 Forming Descending Right Triangle (DRT)

DRTs tend to eventually break in the direction of the horizontal boundary (S1) which is downward.

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

RUT-RS is in a well-defined downtrending channel. Until that channel is overcome to the upside and until the bearish season passes we have no interest in RUT positions..

(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

Admittedly, we are getting nervous about the stock market for the next few months. The bearish season and the obvious bearish NDX and RUT charts do not look good. However, this week has the chance to turn everything around.

For our funds not controlled by mechanical methods, we're currently 100% invested in SPX funds purchased at 1259.84. We're sitting on a 0% drawdown which considering that we sold at the exact top around 1325, we're pretty happy.

Having said that, we'll still be watching the market closely into the end of this week and it's likely that we'll sell to 100% cash at Friday's close to avoid the bearish tendency of the first few days in August.

Any changes to that plan will be posted on the updates page that is here.

If the Neckline at 120 is obviously overcome to the downside on a weekly basis, the XAU should drop significantly to as low as 80. However, considering that there is importantly support (S1) which is the top of the old channel, we do not think the HST will actually be confirmed.

US 5-year Treasury Note Yield (TN)

Rates Continue to Rise (no change)

TN is still being supported by S1. However, the lows have failed to reach S1 creating a steeper uptrend line S2. R2 has also been overcome. Therefore, we expect rates to continue rising supported by S2.

ULTRA's Recommended Strategy Risk

We still believe that the stock market is going to put in double-digit gains in 2006 and that aggressive strategies designed to capture and improve upon those gains should be utilized by investors willing to take on risk. However, if the market breaks to the downside we'd recommend switching to conservative strategies until late October.

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's "RECOMMENDED STRATEGIES"

Our "RECOMMENDED STRATEGIES" are outperforming their benchmarks so far in 2006 by 6% while reducing drawdowns to only 3.6% compared to 12%. These strategies are currently 14% invested. As we've said before, these strategies are extremely conservative and 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's "EASY STRATEGIES"

Our "EASY STRATEGIES" are currently 0% invested and performing well up +3.1% for the year while the SPX is down -0.6%. Our maximum drawdown has been only -2.2%.

EASY Strategy Descriptions are HERE.

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