| Issue #52 |
The
ULTRA Timer Report
|
Aug
10, 2005
|
SPX Technical Price Analysis
SPX Reverses
Per the update we sent out on 08/03/05 (here) we believed that the SPX has come close enough to R1 for us to take gains. This appears to be a good move as the funds we trade are down since our sale.
With today's weakness it now looks likely that a top is in place and therefore the SPX should move down to S2 where it should find some support.
August
As we said in the update, if you take out the first three trading days of August, since 1942 the rest of August has resulted in zero gain over the last 63 years.
There
have been exceptions. There were 20 cases (32%) where the SPX was up 2%
or greater during August (ignoring the first three trading days). In 85%
of these cases, the SPX at the start of August had either:
a) been dropping from a significant high in May, Jun, or July (11 cases)
b) Just experienced a massive bear market drop (3 cases)
c) was flat for the months preceding August (3 cases)
In summary, there has only been 3 years out of the last 63 years where the SPX entered August at a high and then went on to record a gain for period beginning on the 4th trading of August through August 31st. In 2005, we entered August at a high and therefore we believe the odds are very low that the remainder of August will record a significant gain.
NASDAQ 100 Technical Price Analysis
NDX Head-and-Shoulders Bottom (HSB)
Last time with the NDX at 1500 we expected NL to be overcome resulting in a HSB. That has now occurred and the HSB implies a move to over 1700. The recent correction was a perfect retest of NL. Technically, the NDX should move upward from here.
However, the NDX is noisy. Its technical patterns are not perfect. We wouldn't be surprised to see the NDX fall below NL down to S1 and still eventually move higher.
NDX Relative Strength (NDX-RS=NDX/SPX)
Last time we said, "NDX-RS has formed a triangle. If NDX-RS can break out above R2 it would be a very bullish sign for the stock market as a whole." This breakout did occur and it is a bullish sign for the NDX and the stock market.
(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 Support Fails
RUT broke down below a very well-defined uptrend line which is a bearish sign for the RUT.
RUT in Uptrending Channel
For the two years the RUT has been contained in an uptrending channel. Last time we said, "If this rally continues, we expect the RUT to run into stiff resistance at R2 near 700". The RUT was turned back by 700 at the top of its uptrending channel. We now expect the RUT to drop back to S2 at around 600.
RUT Relative Strength (RUT-RS = RUT/SPX)
RUT-RS broke down below the uptrend line S3 which is a bearish 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
We remain bullish on the stock market in 2005 due to the Head-and-Shoulders Bottom (HSB) in the monthly SPX chart.
With
capital not managed by ULTRA mechanical methods:
As of 08/03/05
we are currently 0% invested selling our:
SPX related funds at 1245.04
RUT related funds at 683.38
NDX related funds at 1627.19
We have mixed feelings about the stock market.
Bearish indications:
-
The RUT charts are very bearish.
-
The SPX topped out close to the top of its uptrending channel and then turned down.
-
Today's attempt at a rally resulted in failure.
- When the SPX enters the 4th trading day of August at a high, the odds of remaining days of August resulting in a gain are very small.
- September is a very bearish month historically.
Bullish indications:
-
The Head-and-Shoulders bottom in the NDX.
Considering the bearishness of August and September we will not be taking NDX positions. Considering the bearishness of the RUT charts we'll not be taking RUT positions. That leaves the SPX.
We believe that this market is going to correct and that S2 in the SPX chart will fail. Therefore, our plan as of now is to go 50% long the SPX on the first close under 1185. Unless there is something seriously technically wrong with the market we plan to be fully invested in Late October due to seasonal bullishness.
There is no way we'll chase the market during AUG/SEP/OCT no matter how high it moves without us.
Any changes to that plan will be posted on the updates page that is here.
XAU Technical Price Analysis
XAU Breaks Out above R2
The XAU has been choppy and difficult. Last time we said that if the XAU breaks out we will not chase it. Rather we will wait for the first correction. For the last couple months the XAU has been trading between 90 and 95 and we are currently at the top of that range.
For the last couple years the XAU has been trading between 80 and 110 and we are about in the middle of that range.
We remain bullish on the XAU as long as S2 remains intact on a weekly basis. Our plan is to buy back into the XAU the next time it closes below 91. However, we'll exit that position if S2 fails on a weekly closing basis..
Interest Rate Analysis
US 5-year Treasury Note Yield (TN)
Uptrending Channel Remains Intact
The little move down out of the channel was false and the TN has moved higher. We expect resistance at R2 which should turn interest rates back down. However, if TN can overcome R2 we'd expect a move up to R1.
ULTRA's Recommended Strategy Risk
We still believe that 2005 is going to be a bullish year with a year-end rally very likely. However, the months of AUG, SEP, and OCT tend to be negative and therefore investors should become more cautious 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 about even with our benchmarks so far in 2005 and have kept drawdowns to -3.2% as compared to -9.8% for the benchmark indexes. We are currently 33% invested most of which is in the NDX.
Recommended
Strategy Risk = LOW-MED-HIGH
Sincerely,
Steve Hunter, ULTRA Financial Systems Inc.
ULTRA
Financial Systems Inc.
PO Box 3938, Breckenridge CO 80424
Phone: 970-453-4956 Fax: 970-453-2467
© 2005 ULTRA Financial Systems, Inc.