The ULTRA Timer Report

The October end-of-month (OCTB) buy recorded its first loss in 12 years losing 0.95% trading the SPX. As we said, we were worried because of the big market rally in SEP/OCT. The market was due for a correction and it just randomly occurred during the period that is usually very bullish. We believe that this bullish tendency is very powerful and one failure will actually help it remain bullish in future years. People have a very hard time trusting seasonality and the 25% of the time that those tendencies fail help them continue to work the other 75% of the time.

As for the days following the 11/3/06 expiration of the (OCTB), we said, "we'll stay invested as long as the uptrend line S2 continues to support the SPX. If S2 obviously fails, we'll sell to 100% cash as long as the drop on that day doesn't go down to near S1." As you can see from the chart above, on 11/03/06 the SPX was sitting directly on strong support S1 making it obvious that holding the long position was the wise move.

I apologize for not making this move clear in an 11/03/06 UTR update, but I actually made that decision to my assistant while hospitalized following a serious back surgery. Writing this letter is honestly my first attempt at doing some real work post surgery.

We've been strongly bullish for a long time and we believe this bull market will run to new highs in the SPX. So we're going to give this market some room. We expect the round number 1400 to provide some resistance in the near future but we won't consider selling unless S4 fails on a weekly closing basis, and maybe not even then due to the bullish bias that begins on the Monday before Thanksgiving. If it appears that S4 is going to fail this Friday we'll issue a UTR update.

If S4 fails, there should be support at S5 which is the level of the May06 top. Old tops are often strong support for corrections. If S5 were to fail and the market were to drop to S3, we'd consider that a spectacular buying opportunity and absolutely the worst case for any correction in 2006.

One component of ULTRA's SEAS2 system is buying at the close on the Monday before Thanksgiving and holding until the close of the 3rd trading day in January.

Winners: 75%
Annual Return (CAR): 7.35% (compared to 8.08% for buy/hold the SPX)
Annualized return while invested (CARWI): +27.3%
Maximum Drawdown: -9.4% (compared to -49.2% for buy/hold the SPX)
Ulcer Index (UI): 1.09 (compared to 13.90 for buy/hold the SPX)

Basically if one had only been invested in the SPX during the PTGB period only (11.5% of the time), they'd have almost equaled buy/hold while keeping maximum drawdown to 1/5th of buy/hold and UI at 1/13th of buy/hold.

R1 represents the early 2006 highs and was an obvious place for the NDX to pause. But that pause did not develop.

The NDX has strong support from the uptrend line S1. As long as S1 does not fail we expect the NDX to move much higher. If S1 does fail we'd expect the maximum possible drop would be down to S2 which would be a great buying opportunity.

NDX-RS has formed a flatter line of support S3. At this time, if S3 were to fail we'd only consider it a minor loss of strength for the NDX. If that break were accompanied by other negative indications we'd consider it more serious.

(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

How high can These Indexes go?

Both the NDX and the RUT have recently moved above their early 2006 highs. But as you can see in the monthly chart above, the RUT is only in the middle of its up-trending channel and still has plenty room to move up before reaching R1.

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

RUT-RS has formed a horizontal line of support S2 and a steeper line of support S3. Considering the overall bullishness of the season and the market in general we consider these lines only of minor importance.

(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% long SPX related funds. We won't consider selling to cash unless S4 in the weekly SPX chart were to fail on a weekly closing basis. If a significant correction were to occur we'd use that opportunity to average down into more risk by moving our funds out of SPX funds and into NDX/RUT funds.

On 04/26/06 with the XAU at 157.65 we predicted a drop to 135. Soon after that we predicted a further drop to 120 but stated that level would hold. We started buying at 125 stating we'd average down as the XAU dropped further to 120 which it did.

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. Now 120 has supported the XAU four times in the last year. That is rock-sold support. We expect the XAU to move back up to R1 (over 150) supported by S2. We will sell our gold positions near R1.

US 5-year Treasury Note Yield (TN) (No Change)

TN has now obviously dropped out of the R1/S1 channel and retested that break. 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.

How could rates drop that low in the face of a bull market? Further drops in oil down as low as 40, and a little fed support for the housing market which just put in its biggest median price drop in 35 years..

ULTRA Recommended Strategy Risk (No Change)

As we've said most of the year, we 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, up 8.0% (compared to +10.0%). But we have reduced drawdowns to only -3.6% compared to -12%. These strategies are currently 62% 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 67% invested and performing well up +8.1% for the year. The SPX has moved ahead at +11.6%. 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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