SPX Technical Price Analysis

SPX Symmetrical Triangle (ST) Breakout Calls for More Upside to 1320.

As we said in the last report, "If R1 is overcome we'll expect an attempt to R2 over 1340. That statement may be a little optimistic. The actual ST break calls for a move of the width of the Triangle at the breakout point which is up to 1320. That is also the level of the May06 top. Therefore, we'll be looking to sell around that level.

In the last update we said,

• "As you can see above, we are testing the bottom of this channel [in the 10-day chart which is not shown here] today. If S1 fails and the SPX closes below it, we'd expect a minimum drop of the width of the channel to at least 1260."
• "However following breakouts [of the ST] there is often a retest of the old resistance before the main move gets underway. A retest would bring the SPX back down to around 1260 which corresponds exactly to the objective of the channel [in the 10-day chart] failure as well."

Because of the break down out of the 10-day channel at the close on 08/08/06 we sold the SPX at 1271.48. At the close on 08/11/06, the SPX had bounced off 1260 twice, exactly as we predicted and so we reentered the SPX at 1266.74.

We now expect the SPX to move rapidly up to 1320 symmetrically replicating the May06 move down. At 1320 we expect the SPX to correct back to S2. If the SPX is going to continue to rally up to R2 it should do so supported by S2.

As you can see an upsloping channel S3/R2 is now very well-defined. If we take seasonality into account, the current move up could run out of steam at 1320 disappointing investors causing a sell-off below S2 and back down to S3 during the Sep06/Oct06 bearish seasonal period. If this scenario occurs we'd consider the SPX near S3 in late October to be a spectacular buying opportunity.

The Last Three Days in August

As we said above we expect the SPX to move rapidly to 1320. However, we hope it happens before the close on Monday August 28th because the last three trading days of August have a very bearish tendency. Since 1983 on those three days the NDX appreciates at a -52% annual rate. Since 1990, on those three days the NDX has only recorded 44% winners and appreciates at a -66% annual rate.

Example of how to run this test in ULTRA 9:

1. Select Systems/Options/Systems not fully.../Seas2(V)(C)
2. Click "NEW" and create a variation of SEAS2 with Code=T and Description=General Testing
3. Select only August with 3 in the first column and 0 in the second column and click OK.
4. Select Systems/Options/Seasonal Systems/Month
5. Click "NEW" and create a variation of MONTH with Code=T and Description=General Testing
6. Select only August and click OK.
7. Select File/New and type in the text:
   
   @sys
   month-T,1
   seas2-T,1
   @ALL
   0,0
   1,0
   2,100
   @end
   
   
8. Save the file as C_AATEST.TXT in the \ULTRA9 folder.
9. Test C_AATEST.TXT via ULTRA's Timing/Historical Analysis(Composite) functionality.

C_AATEST.TXT will show up first in your list of Composite Definitions due to the "AA" and will always use the "T" variations of the MONTH and SEAS2 systems. The definition above buys at the close in August with three trading days remaining and sells at the close on the last trading day of August.

We've found great value in using monthly seasonal tendencies as a trading guide by splitting the month into:

• First few days
• Last few days
• The middle

The new system MIDM in ULTRA 10, which is nearing completion and should be announced and available in Oct 2006, makes discovering mid-month tendencies extremely easy.

NASDAQ 100 Technical Price Analysis

NDX Breakout

The NDX has broken out above the downtrend line R1 which is bullish for the market as a whole. It's difficult for us to take on NDX risk in the Aug-Oct timeframe and therefore we did not act on the breakout. But considering the follow-through and our general bullishness we are now looking to enter the NDX on the next correction.

There is a gap at 1535. Since most gaps fill, chances are that the NDX will correct in the next few days down to 1535. As long as that occurs before the SPX makes its 1320 objective we'll consider that a buying opportunity for the NDX. We are also nearing the late-Jun06 top level which is where we'd expect the NDX to pause.

If the NDX starts to correct now and drops to 1535, a potential Head-and-Shoulders Bottom (HSB) would form with the neckline labeled as NL? If that scenario plays out and NL? is overcome to the upside we'd expect an NDX move to 1750 (R3). R3 could end up being another HSB neckline which launches the NDX spectacularly higher in 2007.

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

The NDX-RS has broken out above R2 which is a bullish sign for the NDX and the general 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).

XAU seems to be Forming a Head-and-Shoulders Top (HST) (No Change)

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.

Therefore, we still plan to buy back into gold related funds around 120.

.

Interest Rate Analysis