The ULTRA Timer Report

After a false breakout to the upside and then some U31 buy signals that tend to be accurate but were obviously early, we have been caught in a bit of a drawdown. Since most of our capital is managed by mechanical methods (~75%) and they have done well in the drop, being wrong with our discretionary capital hasn't hurt much. But it has clearly indicated exactly why it pays big to diversify strategy.

We believe that the SPX will now move up symmetrical to the recent drop. That is, it should drop back down and test S1 and then rally to near R2. At that point, we'll probably exit. Frankly, this is really not the type of market we're interested in riding out during Sep/Oct.

The drop in the SPX was only about 12% intraday. Historically, these types of corrections happen all the time. Recently, the market has moved upward with very low volatility. And so the drop seemed shocking to many.

However, this could just be the start of a larger correction. The recent low around 1370 matched the March 2007 low. If the SPX rallies significantly from this point it will be under great pressure to make a new high. If it does not make that high, 1370 becomes the neckline of a large Head-and-Shoulders Top. If that neckline were to fail, the minimum implication of the drop would be to around 1200 (OBJ). This would be a more significant "correction" of 23% off the high. Considering the season we are entering we think this has about a 50% chance of occurring.

The NDX has broken down below an uptrend line S1 and started to fall. We believe this drop will close the gap that opened at 1850. The NDX can close this gap and at the same time retest R1 that was overcome to the upside on Friday. We believe this scenario is likely to occur either late today or tomorrow. That's a 25 point drop from here so it's going to appear like the start of more serious downside. But we believe the NDX bottom will hold.

The NDS-RS (NDX divided by the SPX) has turned downward and taken out the uptrend line S2. This is not a bullish pattern for the NDX.

At this point we will not take on NDX risk until the seasonally bearish SEP/OCT period passes.

S1 has been intact since mid-2004. In the recent drop, the RUT didn't make a monthly close below S1 and so S1 remains intact.

RUT-RS remains in a downtrend indicating that it is relatively weak compared to the SPX. This is not a bullish pattern for the RUT.

But the XAU finally was below 125 at our decision time and we loaded up on XAU related assets before Thursday's close per our plan way back on 04/24/07 here.

Except for some false breakouts, it appears that about 150 (R1) is the top of the range for the XAU over the last couple years. Therefore,

ULTRA Recommended Strategy Risk

We now believe that a 2007 gain approaching 20% is unlikely. Considering that we are entering a bearish and volatile season, we recommend that conservative strategies be employed until late October 2007.

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.

As we've said before, the strategies below are examples of extremely conservative strategies. We believe most investors should be more aggressive considering the bullish long-term chart patterns that are dictating this market.

ULTRA EASY STRATEGIES

Our EASY STRATEGIES (CA_EASY.TXT) are currently 0% invested and are up +5.9% for 2007 with a maximum drawdown of -6.6% compared to the SPX which is up 1.9% with a maximum drawdown of -9.4%. Due to Friday's WROC buy signal, CA_EASY.TXT will move to 33% long at today's close.