The ULTRA Timer Report

The downside objective from the failure of the Symmetrical Triangle (ST bound by S2/R2) we talked about last time has now been achieved. We also said that we thought S1 would hold launching a powerful year-end rally.

Well, it now seems S1 did not hold as yesterday's close was clearly below S1. This is very disappointing as the break confirmed a bearish Rising Wedge (RW) formation.

"Once prices breakout of the Wedge downside, they usually waste little time before declining in earnest. The ensuing drop ordinarily retraces all of the ground gain within the Wedge itself, and sometimes more." -Technical Analysis of Stock Trends, Edwards and Magee.

Further when a significant bearish pattern evolves in early-October (ST failure), followed by another more serious bearish pattern (RW failure), the market is telling us something important. This is the type of action that precedes October crashes.

The most disturbing statement in Edwards and Magee is, "...the Rising Wedge is a quite characteristic pattern for Bear Market rallies." In other words, that the bear market low in 2002 was not the final low in a super-bear but just an intermediate low. Keep in mind that no pattern is much better than 70% accurate.

Having said all that, at this point we do believe that the SPX will find support at 1140 (S3) which will launch a significant rally back up to 1220 by year end. Unfortunately, this could be setting up a large Head-and-shoulders Top pattern with the neckline at S3 which upon its failure would imply a further drop down to at least 1050 perfectly fulfilling the downside objective of the RW in 2006..

Again, trying to predict the future with possible future chart patterns that are only 70% accurate when actually confirmed is very speculative. But we believe that considering possible future scenarios serves as a guide to the future clues as they present themselves.

On the plus side, this Head-and-Shoulders bottom in the SPX monthly chart remains bullish for the long term calling for a move up to 1500. As many of you know, we prefer this scenario which could set up another historical shorting opportunity with a massive double top in the SPX.

The HSB neckline is about at 1140. So the SPX could drop to 1140 keeping the bullish HSB perfectly intact. The SPX could even drop further as long as the monthly close is around 1140.

However, if October closes at 1100 or below, we'd have to opine that this pattern has become unreliable.

Last time we said, "The NDX has formed a parallel trading range (S2/R2). As the SPX breaks down we expect this trading range to fail and for the NDX to accelerate to the downside. A break down out of the trading range would imply an NDX drop to around 1500."

Considering what's happening in the SPX, we are steering far clear of the NDX. There's nothing bullish about this chart and we expect more downside.

NDX-RS has been supported by the uptrend line S3 for many months but we expect this line to fail soon and the drop in the NDX should accelerate.

(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 Downtrending Channel

Last time we said, The RUT is in a downtrending channel (S2/R2). The bottom of this channel is currently at 640. If this channel could remain intact while the SPX and the NDX make their expected lows in later October, this could be a very bullish flag that would make the RUT a very attractive vehicle for the expected year-end rally to SPX 1300. We'll have to watch this situation very closely."

Obviously, that did not happen and any possible Flag formation is now dead. We wouldn't be surprised to see symmetry take over the RUT reproducing (in reverse) the rise up from 570. In other words, a steep drop back down to 570.

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

RUT-RS was being supported by S4 but that support has failed which is bearish 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

We are now worried about the remainder of 2005 and 2006.

It is still possible to have a nice year-end rally even though the likely long-term direction turns negative for 2006. It is also possible that the Rising Wedge pattern fails, we get more downside in October but not so low as to render the Head-and-Shoulders Bottom (HSB) in the monthly SPX chart insignificant..

With capital not managed by ULTRA mechanical methods:
As of 08/03/05 we are currently 0% invested selling our:
SPX related funds at 1245.04
RUT related funds at 683.38
NDX related funds at 1627.19

Since we pretty much nailed the tops in all three market segments we can afford to remain cautious. We are now looking to buy at the end of the October with the SPX around 1140. We'll have to watch the NDX and RUT to determine whether it's worth the risk.

Any changes to that plan will be posted on the updates page that is here.

We believe that the XAU has now peaked and will enter a down phase possibly dropping as low as 80 (S1) where we will be huge buyers. The first drop should be to S2 at around 100 where the XAU could rally back up to R1

If we are wrong and the XAU breaks out of this channel we'll allow it to rise a bit and then drop back to retest R1 before we chase it..

A daily chart of the XAU reveals that the uptrend line S3 has failed and that a small Head-and-shoulders top has formed. If NL significantly fails, the downside objective is around 100 where the XAU should find support (see above).

US 5-year Treasury Note Yield (TN)

Uptrending Channel Remains Intact (NO CHANGE)

We expect resistance at R2 which should turn interest rates back down. However, if TN can overcome R2 we'd expect a move up to R1.

ULTRA's Recommended Strategy Risk

We still believe that a year-end rally is possible. The months of AUG, SEP, and OCT tend to be negative and therefore investors should become more cautious until late October.

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 now about 4% ahead of our benchmarks so far in 2005 and have kept drawdowns to -3.2% as compared to -9.8% for the benchmark indexes. We are currently 19% invested all of which is in SPX funds..

Recommended Strategy Risk = LOW-MED-HIGH

URS Strategy Positions are HERE .
URS Strategy Descriptions are HERE.

Ultra's EASY STRATEGIES

Our "EASY STRATEGIES" are at a 33% invested position and are 2.5% ahead of the SPX with much lower drawdowns.

EASY Strategy Positions are HERE
EASY Strategy Descriptions are HERE.

Last Report