The ULTRA Timer Report

The SPX is at the top of the descending channel that has been in effect since Feb04. As expected this past week did see some additional upside but we now expect the SPX to submit to seasonal weakness and enter a downtrend phase to S1 over the next few weeks.

We believe that the market has the ability to predict major news events and cannot remember a negative news event that was not preceded by a technically bearish SPX chart.

If the SPX were to break up and out of the R1/S1 channel, it would be a very bullish event. In our opinion that would make it very unlikely that a pre-election terrorist event is going to occur.

If the SPX were to break out of the channel to the downside, we'd become far more worried about a significant pre-election terrorist event.

The stock market screamed warnings before 9/11. A very significant uptrend line S2 failed signaling the end of the biggest bull market in history. Further, in Feb01 a large Head-and-Shoulders Top was confirmed by a break of NL. NL was then perfectly retested in May01. Lastly, a significant downtrend line R2 had turned the SPX down many times. This was a very bearish looking chart on the day before 9/11.

Just a few days before the 1987 crash, a Head-and-shoulders Top had been confirmed. On the day of the crash, sitting 100% in cash, we vowed to never to ignore Head-and-shoulder Tops and we've kept that promise.

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.

NASDAQ 100 Technical Price Analysis

NDX Head-and-Shoulders Top Neckline Retest (no change)

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) (No change)

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 Resistance

As expected the RUT rallied this week up to resistance R1. We now expect seasonal weakness to take over and push the RUT back down towards 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. RUT-RS is at R2 where we expect it to reverse downward..

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 (no change)

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

US 5-year Treasury Note Yield (TN)

Uptrending Channel

This is an interesting point for US 5-year Treasury Note Yield (TN). Before the channel was actually in place, we predicted that TN would turn downward at R1 in May04 and retest S1. Now we are nearing S1 where we should get a reversal to the upside in yields. We always assume a well-defined channel will remain in effect until proven otherwise.

However, if the stock market becomes VERY weak into the election, we would not be surprised to see S1 fail which would make a retest of the 2003 low very likely. Needless-to-say we will be watching S1 very closely in the next few weeks.

ULTRA's Recommended Strategies

Recommended Strategy Risk = LOW

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

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