The ULTRA Timer Report

The SPX is nearing the top of the descending channel that has been in effect since Feb04. We would not be surprised to see some rally next week to, and slightly above R2, as the SPX makes its last gasp of strength before submitting to seasonal weakness.

If the SPX can significantly break out of this channel to the upside on a weekly closing basis, then we will become long-term bullish for the stock market. If this occurs in the Sept-to- Mid-Oct timeframe, it will make for a difficult decision. Buying highs in Sep/Oct is rarely a good decision.

We believe that it is likely that the SPX will drop back down to test S2 in the bearish Sep/Oct months.

However, If selling accelerates into a panic, S2 will fail and the SPX will likely drop immediately to S4 (1000) and possibly as low as S3 (950). [S3 and S4 are the levels of old tops which often provide support in a falling market].

The scenario of an SPX drop to S4, then a bounce back up to retest S2, followed by a final sell-off down to S3 in Late October would set up a fantastic buying opportunity.

It is difficult to imagine the market rallying during September but it's certainly not impossible. We think the SPX is nearing a significant top. We do not think that chasing highs is a wise move considering the seasonally bearish period we will enter next week.

September after Labor Day

September is historically a very bearish month. For all months, the first and last few days are relatively bullish.

Historically, If you were invested in the Nasdaq 100 during the month of September except for the first three and last two trading days of the month, your investment would have appreciated at a minus 25% annual rate. That is a very negative tendency that should not be ignored. Unless you have a very good reason, it pays to be in cash during September.

NASDAQ 100 Technical Price Analysis

NDX Head-and-Shoulders Top Neckline Retest

The NDX has perfectly retested its Head-and-Shoulders Top (HST) Neckine (NL). The objective of a confirmed HST is the distance from the top of the head to the NL projected downward at the NL break. That objective is just above 1200 (HST-OBJ).

There should also be significant support at S1 which is the level of the Dec 2002 top.

Therefore, If we get standard Sep/Oct weakness we expect the NDX to put in a very significant bottom around 1200.

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

NDX-RS was contained in an uptrending channel (C1) for a year until it broke down and out in Jan04. Now the NDX is contained in a downtrending channel (C2). We believe that any significant intermediate-term rally in the stock market must have the NDX in the lead. Therefore, until the NDX breaks out of C2 to the upside we doubt if a strong intermediate term rally can get underway for the stock market.

Summary

In spite of the recent rally the NDX charts remain bearish and therefore we will not consider the NDX for capital managed by non-mechanical methods.

RUT Technical Price Analysis

RUT at Nearing Resistance

Resistance R1 is still a bit higher than Friday's RUT close. Just like in the SPX, we would not be surprised to see the RUT to go a bit higher before reversing back down to S1.

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

RUT-RS is still bound by the R2/S2 downtrending channel. A breakout above R2 would be a bullish sign for the RUT but we do not expect it until late October or November..

Summary (No Change)

The RUT charts are almost exactly like those of the SPX. At this point if we decided to take long market positions we would utilize the RUT to some degree.

XAU Technical Price Analysis

XAU Remains Bullish

Catching bottoms in the XAU has just been too easy. When uptrend lines such as that in the XAU develop, they become somewhat self-fulfilling. As you can see in the chart above the XAU typically bounces off S1 for a number of months and then explodes up to R1. We believe that this will soon occur again. Therefore, as long as S1 remains intact, we will continue to buy the XAU when it nears S1 expecting an eventual run to R2.

Interest Rate Analysis

Uptrending Channel (No change)

As expected the US 5-year Treasury Note Yield above (TN) was turned downward by R1 forming an uptrending channel. We expect rates to fall further to S1. If S1 fails to support TN we expect a retest of the 2003 lows. This event would probably correspond with a very weak stock market into the November election.

ULTRA's Recommended Strategies

Recommended Strategy Risk = LOW-MEDIUM

Recommended Index = SP500.
Strategy Positions are HERE .
Strategy Descriptions are HERE.

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