The ULTRA Timer Report

The SPX broke up out of the downsloping channel (R1/S1) on the daily chart but has now fallen back down into the channel indicating a false breakout is likely to have occurred.

In a chart pattern that extends many weeks and has intermediate-term implications, we usually require a confirmation of any significant breakout in the weekly chart.

As you can see in the weekly chart, the downtrending channel in the SPX has not been overcome and still contains the SPX.

If the R1/S1 channel is a Flag that is going to be overcome to the upside resulting in a another bull market leg, then the SPX should find support at S2 and then clearly overcome R1 on a weekly basis.

The NDX chart has become increasingly in line with that of the SPX. There is now a well-defined downtrending channel in the NDX similar to that of the SPX. There is a clear uptrend line drawn across two significant bottoms. This line will be the key to whether we are going to break out above R1 to the upside or whether another test of S1 is in the cards for the near future.

The NDX-RS is contained in a downtrending channel bound by R3 and S3. Increasing strength in the NDX has resulted in NDX-RS coming near the upper boundary of the channel. A break out of this channel to the upside would be a bullish event for the NDX and the market as a whole.

RUT Technical Price Analysis

RUT also Failed to Break out on a Weekly Basis.

The RUT traded above its channel mid-week but could not close out the week above R1 and therefore did not officially break out of the channel.

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

RUT-RS has broken out above its channel which is a bullish sign. As long as S4 remains intact we will remain relatively bullish for the RUT.

Stock Market Summary

We are beginning to believe that the markets are predicting no pre-election terrorist event. The recent channel breaks in the daily charts, although they failed, are a signal that this market wants to break out higher. Markets that desperately want to sell off would fail to even make the upper boundaries of trading ranges. Once at that resistance they would sell off quickly. This just doesn't seem to be happening.

We now have a feeling that S2 in the SPX and NDX are going to hold and that the SPX is eventually going to break out to the upside. To be safe we will continue to watch the weekly charts to determine when/if to take long positions with accounts not managed by mechancial strategies. If these channels are overcome to the upside on the weekly charts we will take long positions with our discretionary capital.

Having said that, if S2 fails in either index we will instantly reverse our opinion and revert back to expecting significant downside to the bottom of the channels.

There is a Head-and-shoulders Bottom (HSB) that implies and eventual XAU move to over 150 in effect. The neckline (NL) was overcome in Aug03 and retested perfectly in May04. As the XAU was bouncing off S1 we become very bullish calling for an eventual move to 150.

Of course it's highly unlikely that the XAU will move straight up to 150 from here. The last three significant rallies (May01, May02, Nov03) have had increasing highs (R1) and we expect that phenomenon to continue until the eventual high of 150 is reached. The best case is that this rally accelerates to reach R1.

The XAU has made an impressive run in the last 10 weeks and is probably about ready to correct. It makes sense that the level of NL? would be where the rally would pause since this was the level of the high in Mar04. If the XAU does correct from here for a few weeks, it would set up a new Head-and-shoulders Bottom (HSB) pattern that would be confirmed when NL? is eventually overcome. This HSB would re-imply the move to 150+.

We expect the XAU rally to pause for a few weeks finding support at around 95 before turning back higher.

Interest Rate Analysis

US 5-year Treasury Note Yield (TN)

Uptrending Channel

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.

ULTRA's Recommended Strategies

Our "Recommended Strategies" have moved to a 33% invested position which is still very defensive. As we said above we are beginning to think that the markets are prediciting no pre-election terrorist event which should be very bullish for the stock market regardless of who wins the election. As we enter November our strategies should begin to phase into the rising market. If the Nov-Dec period is bullish as usual we should end the year with some pretty good gains still keeping our maximum drawdowns far below 10%.

Recommended Strategy Risk = LOW-MED

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

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