The ULTRA Timer Report

Last time we said, "We're still OK about the sale [at SPX 1311] thinking probability is high that the SPX will trade at least as low as 1290 in the near future." This SPX did drop to 1291.35 but has now rallied strongly back up to the upside objective (O1) we predicted on August 7th.

Last time we also said, "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." This has now also occurred exactly.

Last time we mentioned that we are facing a tough decision and that situation remains. We have bullish chart patterns in the SPX, RUT, and NDX but we are in a very bearish seasonal period. Year after year we're faced to make the same simple statement and we'll make again today, "we will not chase this market in September."

There is also a clear, double-headed head-and-shoulders bottom (HSB) confirmed in the SPX which calls for a move to at least 1360. By definition, because of the HSB, the SPX should only drop back to its neckline R1 at 1290. So that doesn't leave much potential downside this fall even though it's likely a short-term top is going to occur very soon (see below).

It appears that the Dow Jones will close 2% above its 21-day moving average today or soon. Historically, when this occurs at some date in September after the first three bullish trading days, the next 15 days have a very negative tendency (Historical Results below):

This actually occurs often. Since 1990 there are 10 cases in 16 years (63% of the years). (Tested using a composite of ULTRA's DCH, MONTH, SEAS2 systems). This clearly indicates that there's a high probability that a short-term top will occur in the next couple days.

It appears that the likely action will be that a short term top will set up around 1325 and the SPX will trade between 1325 and 1290 for the next 15-20 trading days. The SPX could drop as low as 1280 and still allow the HSB to remain intact. These patterns are not perfect and often the neckline retest will take the market slightly below the neckline (1280 or so).

It usually pays to avoid the market during September and the first half of October. But considering that it seems unlikely that significant downside will occur this fall, we'll look to go long at the next retest of 1290. Hopefully that will occur around 09/27/06 due to the bullish tendency of the last two days of September and first three days of October (Historical Results below):

If the market just continues higher we'll go long on 09/27/06 for those five days and possibly longer depending on market action.

We still believe the SPX will eventually equal its 2000 top near 1600 (OLT) due to the large Head-and-Shoulder bottom (below). This historic move could get underway in late October 2006 and continue through 2007.

Historically, investors could have almost matched buy/hold the SPX by only holding during the year before a presidential election (2007). During these years the SPX has never recorded a loss and has recorded double digit gains in 82% of the trades. During these years, the SPX appreciates at an amazing 17.6% annual rate. (Tested using Ultra's PRES system)

Historically, the stock market has performed about evenly under Democratic vs. Republican leadership. However, if the Democrats take control of the House this November, investigations of prewar intelligence and possibly impeachment efforts would be very negative for the stock market. Allowing the tax cuts to expire would be very negative for the market. We believe that if Republicans retain control of congress, that would be very positive event for the market.

With the public consensus being that the war in Iraq is a disaster with civil war imminent, anything positive that occurs in Iraq will be positive for the market. If we are able to hand over security control to the Iraq government and they are successful at slowing sectarian violence, that would be a very positive event for the market.

West Texas Intermediate (WTI) has fallen below a monthly uptrend line S1 (see below). With the public talking about future $100+ oil and $5/gal gas, it was obvious that oil was overdone. We would not be surprised to see oil drop back to S2 around $35/bbl. This would be a spectacular positive for the stock market.

The 5-year T-note (TN) is threatening to break down below the uptrending channel that's been in effect for three years (see "Interest Rate Analysis" below).

In summary we see many fundamental reasons that line up with the technical reasons for a very significant stock market rally getting underway this fall.

There is a very bullish HSB in the NDX that calls for an upside objective of 1750 (O1).

As we said last time, 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. We still believe that another retest of NL this fall is likely.

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 Descending Right Triangle (DRT)

The upside objective of the DRT break is the width of the DRT at the breakout point with is 760 (01). There is also an uptrending channel forming in the RUT (R2/S2). The bottom boundary (S2) will be a good point to take long positions upon the next short-term correction.

RUT Relative Strength (RUT-RS = RUT/SPX)(No Change)

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. We remain very bullish for the long-term and there are very bullish intermediate-term chart patterns confirmed in all three indexes. If this weren't September we'd never risk missing out on the big moves that should occur in the near future.

We are still looking to get back into this market with the SPX around 1290 splitting our funds into 1/3rds SPX, RUT, NDX. Specifically, we like to get into the SPX at 1290, RUT near S2, NDX near NL. We'd prefer that all these short-term lows occur around 09/27/06 which would make our decision easy. As we said above, we plan to go 100% long the SPX on 09/27/06 for at least five days regardless of what occurs in the indexes. If the RUT / NDX don't give us our buy opportunities we'll just live with the SPX.

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.

We do not Believe that the XAU Head-and-Shoulders Top (HST) will Confirm by Dropping Significantly Below NL.

For a long time we've been stating that the XAU would drop back to 120 (S1) and now we're only five points away.

The 120 level is the top of a horizontal channel that had been in effect for a couple years after the huge Head-and-Shoulders Bottom that caused us to predict the XAU move to over 160 back in 2003.

As you can see, S1 meets up with S3 just under 120 in the next couple months. We believe that this level will be a significant bottom for the XAU. We are now starting to accumulate gold mining shares in anticipation of this bottom.

US 5-year Treasury Note Yield (TN)

TN is threatening to drop below S1 and out of the uptrending channel that's been in effect for the last three years.

As we said last time, "We first predicted this channel would set up on May 5, 2004 here and so it is very near and dear to us."

The failure of this channel would signal that a period of falling rates is likely which would be bullish for the stock market. We'll be watching this channel closely.

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 believe that 2007 will put in gains approaching 20%.

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 0% 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 +6.4% for the year while the SPX is up 5.4%. Our maximum drawdown has been only -1.7% compared to -7.7% for the SPX.

EASY Strategy Descriptions are HERE.

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