The ULTRA Timer Report

The SPX could not remain supported by the uptrend line S2 which indicates a retest of the lower channel S1 is likely. If we can get some serious weakness in the next two days, a perfect buy signal would set up with the SPX near S1 during the late October buy period.

Historically if one had owned the SP500 on the last two trading days of October and the first three trading days of November they would have experienced 74% winning trades. During those five days the SP500 appreciates at an annual rate of 98%. (Presidential election years have historical produced similar results with 80% winners.)

There hasn't been a losing trade since 1993. During the period 1994 to present there have been 100% winners and the SP500 has appreciated at a 260% annualized rate while invested. In 2004, this buy signal occurs on Wednesday 10/27/04.

If these events were likely, we'd expect the downsloping channel to breakdown before. That does not seem likely at this point. Therefore, we do not expect pre-election events to significantly effect the market. Regardless of which candidate wins we also expect a significant "relief" rally into year-end.

The NDX has not violated its uptrend line S1 but this could occur in the next few days due to pre-election fear. If S1 remains intact it will be very bullish for the general market. If S1 fails we expect support at S3 which is an old, and very significant support level.

The NDX-RS has bullishly broken up and out of its downtrending channel bound by R3 and S3. This is not the type of action we would expect if there was going to be serious downside in the market in the near future..

RUT Technical Price Analysis

RUT also Failed to Break out on a Weekly Basis.

The RUT traded above its channel midweek 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 S3 remains intact we will remain relatively bullish for the RUT.

Stock Market Summary

We still believe that the markets are predicting no significant pre-election terrorist event. The recent channel breaks in the relative strength charts of the NDX and RUT are bullish indications for those indexes and for the general stock market as well. Beginning at Wednesday's close we enter an extremely bullish seasonal period. As long as someone is elected on election day or shortly thereafter, we expect a significant rally into year-end.

It is very likely that we will be taking long positions in our accounts managed by non-mechanical methods at Wednesday's close. As long as the NDX-RS remains above R2 and RUT-RS remains above S3, we will be splitting our investment into thirds with 1/3rd in each of the SPX, NDX, and RUT. If the SPX is at or below 1075 we'll invest 100%. If not we will invest 50% waiting to put the other 50% to work when the SPX nears S1.

As you imagine it's pretty difficult to develop investment plans days in advance. If our plan changes we will issue a special notification.

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

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 R1 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 R1 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 (S4) before turning back higher.

XAU-RS is nearing the top of its uptrending channel which indicates the rally should pause for a few weeks.

We are going to sell our long-term XAU positions on 10/26/04 as long as there isn't a collapse in price. We expect the rally in gold to pause for a few weeks. We will most likely repurchase these positions at the first close under 95. We still expect the XAU to eventually reach 150.

US 5-year Treasury Note Yield (TN)

Uptrending Channel (No change)

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 48% invested position which is still defensive but obviously indicating that we have moved into a more bullish environment for the stock market. That evidence, in combination with the bullish seasonal period we are entering, leads me to believe that fears of a significant pre-election terrorist event are overdone and there should be relief rally into the end of 2004. We still believe we'll end the year ahead by around 10% with our mechanical strategies.

Recommended Strategy Risk = LOW-MED

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

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