SPX Technical Analysis

We Cautiously Believe a Significant Bottom is in Place.

As you can see above we now have some support formed at 840-860 in the SPX (S1). We believe that it's unlikely for this support to fail in the seasonally bullish period that began in Late October and ends in early January. More likely is that we'll bounce between S1 and R1 for the rest of 2008.

The next major move should occur in the direction of the break out of the R1/S1 triangle and should move about equal to the width of the triangle at the break. Today the triangle is 130 points wide. If the triangle were to fail tomorrow to the downside, we'd expect a rather immediate 15% drop to 730 which is 130 points below S1. At this level the SPX would again try to build a new bottom.

Historically since 1942, if one had bought the SPX at the close on the next to last trading day in October and sold at the close on the third trading day of January, they'd have received the following results:

Winners: 79%
Maximum Drawdown: -17.1% on 12/05/73
Annualized return while invested (CARWI): 23.5%

Almost 80% winners with a CARWI of three times the normal SPX appreciation rate is a pretty good bet. This year, the buy signal came on 10/29/08 at SPX 930.09. So, if one were to enter below 930.9, their odds of a winner would seem to be higher.

Historically, if one were to enter 1.5% or lower below the late October buy (916.14 or lower this year), they'd have received the following results:

Winners: 81% (occurred 37 times out of the last 66 years)
Maximum Drawdown: -15.7% on 12/05/73
Annualized return while invested (CARWI): 25.1% .

Taking this idea further, if one were to enter 3.75% or lower below the late October buy (895.21 or lower this year), they'd have received the following results:

Winners: 77% (occurred 17 times out of the last 66 years)
Maximum Drawdown: -13.9% on 12/05/73
Annualized return while invested (CARWI): 40.7% .

Interestingly, this (3.75% or greater loss) seems to occur often in bear market years including 1973, 1974, 1987, 1994, 2000. We believe the SPX will close below 895.21 in 2008 in the near future, possibly today.

Therefore, the next time the SPX is below 895.21 and above S1 at our fund trading cutoff time, we'll go 100% long Rydex Nova hoping for a nice end-of-year rally.

We are still planning to get back on track with the new ULTRA Timer Report which will be in a new expanded and timely format. It will also contain a new method of notification which will be much more timely and reliable than email. Details will follow soon.

Sincerely,
Steve Hunter, ULTRA Financial Systems LLC