The ULTRA Timer Report

Last time we said, "We now expect the SPX to move rapidly up to 1320 symmetrically replicating the May06 move down." With yesterday's close at 1313 that has almost come true. Per our update on Friday Sept 1, we sold to 100% cash at SPX 1311.01 because of the post-Labor day bearish bias that follows Friday gainers (detailed here). The day after Labor day was not a down day but we're still OK about the sale thinking probability is high that the SPX will trade at least as low as 1290 in the near future.

We are now nearing strong support in the SPX (S1) which could launch another attempt to R2 at around 1325. Because of the season (September) we're going to pass on trying to capture that move and stay in cash for at least a little while.

We believe that S1 will fail in September and that the SPX will drop to at least O2 at 1290 which is the level of two significant tops in 2006. It will be a tough decision if O2 supports the drop on a daily close. Depending on how bad this market wants to rise, that could easily be the extent of the drop. A drop to O2 would be a perfect retest of the neckline of a double-headed Head-and-Shoulders bottom with heads H1 and H2.

Another possible scenario is that fear selling in the next couple days prior to the five year anniversary of 9/11 takes the SPX down to O2 and then a huge relief rally when no terrorist even occurs. If the SPX closes on O2 on Friday 9/08/06, buying that close will simply be a bet on whether or not there's a terrorist event on Monday 9/11/06. Since the market usually makes timing decisions difficult that's probably what will occur...

An easier decision would be a slice right though O2 at Friday's close setting up an obvious later buy at O3 around 1250. O3 is the top of the old ST which should be extremely strong support. However, if O2 were to fail at Friday's close we believe that the odds of an anniversary attack on Monday goes up.

In any case, we believe that O3 is the worst case for a fall correction as long as a 9/11 level terrorist attack does not occur in the US on the 9/11 anniversary. Having said all that, considering the bullish patterns in both the NDX and RUT (see below), it's hard to imagine how the SPX could drop down to O3. But this is September which has a bearish bias.

Last time we said that we were waiting for the NDX to drop to 1535 to fill a gap at which we'd buy. Unfortunately, the lowest the NDX got was 1543. The gap appears to have filled when looking at the graph but technically it didn't get quite low enough to trigger a purchase for us.

We also said last time that a HSB could be forming in the NDX. That HSB has now been confirmed with a break out above NL. The objective for this pattern is 1750 (O1).

Patterns in the NDX tend to be noisy and so even if NL doesn't quite support the NDX on a retest, we believe the pattern remains bullish for the NDX and the market as a whole.

In a perfect world, we'd love to see the NDX at the intersection of NL and S1 in late October for a very obvious buying opportunity.

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).

RUT Technical Price Analysis

RUT Forming Descending Right Triangle (DRT)

Last time we said, "The RUT is still stuck in its DRT". As we also said last time, "DRTs tend to eventually break in the direction of the horizontal boundary (S1) which is downward. But considering developments in the SPX and NDX we expect the break to occur to the upside."

That upside break has now occurred. The objective is the width of the DRT at the breakout point with is 760 (01).

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

RUT-RS has now broken out of a well-defined downtrending channel which is bullish 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

For our funds not controlled by mechanical methods, we're currently 100% cash selling our SPX correlated funds at 1311.01. There are very bullish chart patterns confirmed in all three indexes. If this weren't September we'd never risk missing out on the big upmoves that should occur in the near future.

We are looking to get back into this market with the SPX around 1290 splitting our funds into 1/3rds SPX, RUT, NDX.

At this point our plan is that if the SPX closes at 1290 on Friday we'll likely take long positions with call options to limit our risk in the case of a terrorist event on Monday 9/11/06. Then once Monday passes we'll consider taking our normal fund positions.

If the SPX decides to make another run at 1320 at this week's close we'll wait for a later buying opportunity.

We suggest that you monitor our updates page (which is is here) around 1:35pm (Mountain) for any changes to that plan as our decisions look to be difficult and could be too "last-minute" to allow for a timely email notification.

Last time we said, "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." and "Therefore, we still plan to buy back into gold related funds around 120. " We are obviously still waiting for that drop to 120.

In the meantime, the XAU has broken out above the horizontal boundary of a small Ascending Right Triange (ART) bound by R2 and S2. Projecting the width of the ART at the breakout point upward creates the objective (O1) of 160. We believe that the XAU will move to 160 and then drop back to S2.

We still believe that S2 will eventually fail and we will get a good long-term buying opportunity at 120.

US 5-year Treasury Note Yield (TN)

That was Quick...

Last time we said, "S2 has now failed to support TN and therefore we expect a further drop over the next few weeks to S1." That objective has now been met with TN at S1. We now expect TN to rise for a while back up to S2. But considering the speed of the drop in rates, a break out below the channel looks very possible in the near future. We first predicted this channel would set up on May 5, 2004 here and so it is very near and dear to us. All great patterns must eventually end and it looks like this channel may have finally run its course. But until it breaks, we must assume it continues.

Ultra's Recommended Strategy Risk (No Change)

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.

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 still slightly above their benchmarks so far in 2006 and have reduced 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 +6.2% for the year while the SPX is up 5.2%. Our maximum drawdown has been only -1.7% compared to -7.7% for the SPX.

EASY Strategy Descriptions are HERE.

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