The ULTRA Timer Report

If the SPX closes near (or above) 1200 at year-end, a huge head-and-shoulders bottom (HSB) will be confirmed in the monthly chart that calls for a move up to 1500 in the SPX in 2005. We expect this scenario to occur and are therefore very bullish for 2005.

During years ending in five, the SPX historically appreciates at a 26% annual rate and has never recorded a losing year in the six cases since 1945. We feel that this is probably coincidence and self-fulfilling prophecy. However, there is going to be a lot of press about this phenomenon (as there was in 1995) and therefore it may become self-fulfilling again.

In early 1995, a very important area of long-term resistance was overcome causing us to become very bullish in spite of outrageous valuations. Considering the HSB (above) we believe that history is about to repeat itself in 2005.

It may well be that in January 2006 the SPX is over 1500 and near another major top setting up the biggest double top in history, and another historical shorting opportunity in overvalued speculative stocks as the public buying frenzy runs out of steam.

In the short-term we still think there is going to be some downside in the next few days as the SPX has set up a downtrending channel in the last couple days.

We are looking to reinvest our 50% cash position at any close where the SPX is near S2, which is at 1185 today. We believe we are going to get that opportunity this week.

The NDX is at some fairly important support (S2). If S2 fails we'd expect a drop in the NDX to S1. Where buying the NDX would become very attractive.

The NDX-RS clearly broke down below S4 on Thursday and we sold our NDX positions and put the proceeds into SPX funds at Friday's close.

(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 Uptrending Channel

The RUT has set up an uptrending channel between S2 and R2. If S2 fails to support the RUT a drop to S1 becomes likely.

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 2005 as long as 2004 is closed out near or above 1200 in the SPX.

With capital not managed by mechanical methods:

We are currently 50% invested with 2/3 in SPX funds and 1/3 in RUT funds.

We are watching S4 in the RUT-RS charts very closely. If S4 fails in the RUT-RS, we'll sell our RUT positions and move the proceeds into SPX based funds.

At any close near S2 in the SPX we'll move back to a 100% invested position. As of now the 50% that will be invested would go 2/3 into SPX funds and 1/3 into RUT funds.

We will move 1/3 out of SPX funds into NDX funds when (if) the NDX nears S1.

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:

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

In the short-term chart of the XAU, a Head-and-shoulders Top (HST) seems to be forming. If NL fails to support the XAU a drop to 93 becomes very likely.

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.

We are now more convinced the XAU will drop to S1 (93). Since the amount of capital we allocate to non-option gold investments is relatively small, this drop is rather insignificant to our overall positions. Therefore we're not too worried about taking a little drawdown considering our long-term bullishness on gold.

As we said last time we still plan to average down by buying 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 purchase/sale of these options).

US 5-year Treasury Note Yield (TN)

Uptrending Channel

We still believe the recent downtick in yields to be temporary and that yields should rise to R1 sometime in 2005.

ULTRA's Recommended Strategy Risk

We believe that 2005 is going to be a bullish year. Therefore high-risk strategies, (those that are invested over 60% of the time) can be used for investors willing to take on that risk.

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