| Issue #34 |
The
ULTRA Timer Report
|
Sep
20, 2004
|
SPX Technical Price Analysis
SPX has Clearly Violated Uptrend Line S1
As we indicated last time, the SPX is at the top of the descending channel that has been in effect since Feb04. Now the SPX has clearly violated an uptrend support line S1. The make it very likely that the SPX will turn significantly downward into October.
Election Year October
October in an Election year is moderately bullish with 60% winners and the SPX appreciating at an annual rate of 11%. October used to be the second most bearish month but since 1998, October has been very bullish with 83% winners and the SPX appreciating at an annual rate of 72%.
However, this election year is unlike any other in our country's history because of the threat of a pre-election terrorist event. Therefore we are discounting any bullish tendency and counting on our mechanical strategies and pure Technical Analysis to keep us out of trouble.
Politics and the Market
We believe that the stock market wants Bush to be re-elected and it is not a coincidence that the market has shown strength during Bush's surprising bounce in the polls. It seems that Bush's chances will be highly related to how much bad news comes out of Iraq in the coming days. If the pundits are correct in predicting that the situation in Iraq will worsen (which seems likely), the presidential race should return to a toss-up which should be short-term bearish for the market.
NASDAQ 100 Technical Price Analysis
NDX Strengthing but can it Remain Above Support?
The NDX has shown surprising strength. While the SPX has violated its uptrend line the NDX has not. This is not what we expected to see. If the NDX can remain above S1 our case for weakness into the election diminishes.
NDX Relative Strength (NDX-RS=NDX/SPX) (No change)
The NDX is contained in a downtrending channel bound by R2 and S2. As you can see the NDX-RS is only in the middle of its channel (as compared to RUT-RS which is at the top). Even though the NDX has been very strong in recent days it is still relatively weak compared to the other indexes and that probably explains why it's been "catching up" recently.
RUT Technical Price Analysis
RUT at Resistance
The RUT is now exactly where it should turn downward. S2 has not
yet been violated but one more down day and a clear breakdown
will have occurred.
RUT Relative Strength (RUT-RS = RUT/SPX)
RUT-RS is still bound by the R3/S3 downtrending channel. A breakout above R3 would be a bullish sign for the RUT but we do not expect it until late October or November. RUT-RS is at R3 where we expect it to reverse downward..
Stock Market Summary
If it were not for the NDX it would be obvious that all segments
of the market are ready to reverse and go much lower. Considering
the relative weakness of the NDX we expected the NDX to lead the
market downward. However, we still believe that this rally has
run its course and the next few weeks should be to the downside.
All it will take is one down day and both the NDX and the RUT
will violate their uptrend lines which should trigger a significant
decline for all segments of the stock market.
Considering:
-
The threat of pre-election terrorism,
-
The fact that the presidential election should again become an even race,
-
The obvious fact that the SPX and the RUT are at the very top of well-defined channels,
- The failure of the SPX uptrend line.
We will not be taking long positions in accounts managed by non-mechanical methods.
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 (no change)
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
Sincerely,
Steve Hunter, ULTRA Financial Systems Inc.
ULTRA
Financial Systems Inc.
P.O. Box 3938, Breckenridge CO 80424
Phone: 970-453-4956 Fax: 970-453-2467
© 2004 ULTRA Financial Systems, Inc.