Issue #40
The ULTRA Timer Report
Dec 13, 2004

SPX Technical Price Analysis

SPX Uptrending Channel

The SPX has reached resistance R2 and the resistance provided by the round number 1200. This is the place where it's likely that the SPX reverse for a few days down to around 1180 where the SPX should find support from S2.

 

NASDAQ 100 Technical Price Analysis

NDX Weakening Slightly.

The SPX made a new closing rally high today but the NDX did not. This is slightly concerning. Another concerning issue that the the slope of the uptrending support S3 is not sustainable. However, with support lines this steep, and since failure is inevitable, the implications of such failure are often minor. S1 looms quite a bit below S3 and we think that a drop to S1 in the next couple weeks is very unlikely.

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

The NDX-RS remains slightly above S4. If S4 fails we will sell our NDX positions and move the proceeds into SPX based funds.

(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 Weakening Slightly

As you can see, the RUT broke down below a steep uptrend line (S2) which is a sign of weakening but nothing serious for the intermediate-term.

RUT Relative Strength (RUT-RS = RUT/SPX) (no change)

As long as S4 remains intact we will remain relatively bullish for the RUT. If S4 fails we will sell our RUT positions and move the proceeds into SPX funds.

(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 remain bullish on the stock market into early January at least.

With capital not managed by mechanical methods:

Per the update we sent out before Monday's market close, we sold 50% of our positions in each of the SPX, NDX, and RUT at today's close which leaves us 50% invested split into funds associated with those three indexes.

We are watching S4 in the NDX-RS and RUT-RS charts very closely.

  • If S4 fails in the NDX-RS, we'll sell our NDX positions and move the proceeds into SPX based funds.
  • If S4 fails in the RUT-RS, we'll sell our RUT positions and move the proceeds into SPX based funds.

At any close at or below 1180 in the SPX (S2) we'll move back to a 100% invested position.

XAU Technical Price Analysis

XAU to 150 (Eventually)

Per our recent update, we repurchased the XAU at 98.8, which is 6.5% below our October sale. As you can see the XAU reached 96 (S2) and then rallied strongly into the close. S2 was a good downside objective because:

  • It's the level of an old top (old tops often provide support)
  • It's the distance below S3 of the width of the S3/R3 channel which failed.
  • There was a significant opening gap on 12/8/04 which was most likely going to close.

The 12/8/04 gap has now closed and there could now be more downside to S1 at 93.

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

As you can see XAU-RS broke down below S4 which we thought was likely. This break is bearish for gold but we believe the damage will be contained to a drop in the XAU to about 93.

Gold Market Summary


We will ride out a drop to 93 (S1) and average down with XAU call options as the XAU touches S1. (Option buys/sells are beyond the scope of this letter. So we may not be able to give you timely information about the sale of these options).

Interest Rate Analysis

US 5-year Treasury Note Yield (TN)

Uptrending Channel

Last time we said, "As expected yields have turned higher. We expect this trend to continue for a number of weeks. We expect TN to reach R1 in early 2005 which should correspond with a significant top in the stock market."

We still believe this to be likely and the recent downtick in yields to be temporary. However if S1 were to fail, it would be a very interesting and significant development. This could also signal an end to the stock market rally as money moves out of stocks and into bonds. If S1 fails, we'd become less bullish and possibly bearish on the stock market and expect yields to test the 2003 low.

ULTRA's Recommended Strategy Risk

Since we believe that the next couple weeks (at least) is going to be to the upside with low downside volatility we are recommending high risk strategies (those that are invested over 60% of the time) for investors willing to take on that risk. Personally we are still only using low and medium risk strategies in order to keep drawdowns low

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.

ULTRA's RECOMMENDED Strategies (No Change)

Our "RECOMMENDED STRATEGIES" are at a 62% invested position which is about as long as they are likely to get because they are extremely low-risk in nature. However, since we trade leveraged funds, our actual position is near 100%.

It's going to be tough to outperform our benchmark indexes in 2004 (not considering our leverage) because we expect the remainder of 2004 to be up with low downside volatility. That is not a scenario where timing can outperform buy/hold. However, on a risk-adjusted basis we should far outperform the indexes. And that is what matters most to us, decent yearly gains with low risk.

Recommended Strategy Risk = LOW-MED-HIGH

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

ULTRA's EASY Strategies (No Change)

Our "EASY STRATEGIES" are at a 67% invested position. They would go 100% long if the COT1 system could get itself on a buy signal.

EASY Strategy Positions are HERE
EASY Strategy Descriptions are HERE.


Last Report

 

Sincerely,
Steve Hunter, ULTRA Financial Systems Inc.

ULTRA Financial Systems Inc.
P.O. Box 3938, Breckenridge CO 80424
Phone: 970-453-4956 Fax: 970-453-2467

© 2004 ULTRA Financial Systems, Inc.