The ULTRA Timer Report

In the last couple issues we 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." With the SPX briefly touching 1340 this morning we slightly underestimated this move.

One of the main reasons we've been able to keep our maximum drawdowns around 12% over the last 15 years is that we almost never chase markets. If an investor worries about being left behind by the market, their emotions will make buying almost irresistible right about the same time a top is forming. In the long-term, resisting the urge to chase the market and instead being patient and waiting to buy a pullback is how one keeps drawdowns low, even if it's likely that the eventual pullback may bottom at a higher level.

Having said that, we'll pass on buying today with our capital not controlled by mechanical methods and wait for a better opportunity.

As we've said many times, we're very bullish through 2007. So, we're looking to get back 100% into this market. Generally when the market has a bullish long-term bias, short term bottoms occur with the Dow Jones Industrial Average (DJIA) closing about 2% below its 21-day moving average (MA). That's what we'll be looking for during October. If this occurs, the SPX will probably be just under 1300 (around S2).

Therefore, we believe that the probability that the DJIA will close 2% below its 21-day moving average sometime in October 2006 is at least 75%. For those of us that seek to keep risk (drawdown) low, that is worth waiting for.

Obviously, the market is very good at shattering "hopes". IN ANY CASE, we will swallow our pride and go long at the close with two trading days remaining in October (as usual) because the following five trading days are the most seasonally bullish that exist.

There is a very bullish HSB with neckline NL in the NDX that calls for an eventual upside objective of at least 1750 (O1). If the October correction we are looking for occurs we'd expect S1 to still support the NDX.

As we've said a few times in the past, the NDX-RS has broken out above R2 which is a bullish sign for the NDX and the general market. Now the NDX has formed a well-defined uptrend line S2. This line may fail in an October correction setting up a less steep and more important line of support.

(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) (No Change)

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 may be Forming a Short-Term Head-and-Shoulders Top (HST)

The RUT really needs to continue to move higher. If it runs out-of-steam here, breaks down below S3, then a drop to 715 (NL) becomes likely. If NL can't support the RUT, the HST will be confirmed implying a further drop to around 690.

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

RUT-RS has now broken down out of a small uprending channel. As of now this is a minor negative but still represents the first chink in the armor of the current stock market rally. And it could certainly turn into something bigger if the RUT turns downward today and confirms the short-term HST above.

(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. However, It appears that the RUT is breaking down a bit.

We believe the chances are around 75% that we'll see a short-term correction in October that will allow us to reenter the market below SPX 1300.

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've been stating that the XAU would drop back to 120 (S1) and now that's pretty much happened. As we said last time, we started accumulating positions on 09/15/06 and will continue to average down at levels nearer to 120.

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 has now obviously dropped out of the R1/S1 channel. We expect a drop in rates equal to the width of channel giving an eventual downside object of around 3.60 (O1). That level also corresponds with first top in the channel and the late 2001 low which adds to the importance of that level.

ULTRA 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 URS STRATEGIES

Our URS STRATEGIES are now still slightly below 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 examples of extremely conservative strategies. 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 EASY STRATEGIES

Our EASY STRATEGIES are currently 0% invested and performing well up +6.6% for the year. The SPX has moved slightly ahead at +7.1%. However, our maximum drawdown has been only -1.7% compared to -7.7% for the SPX.

EASY Strategy Descriptions are HERE.

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