Issue #27
The ULTRA Timer Report
May 27, 2004

SPX Technical Price Analysis

SPX Nearing Resistance

Last time we said:

  • "A bottom should occur in the next few days"
  • "We will go 100% long the SPX if the NDX Head-and-shoulders Top (HST) does not confirm (see below) and the "S1 Retest" scenario detailed above unfolds or upon an upside break or R2."

Both of these statements occurred exactly as planned.

Now as you can see in the chart above the SPX is nearing strong resistance R1 at ~1130. There is going to be massive selling at and below R1. If the SPX can overcome R1 it will be extremely bullish in our opinion. But it is going to be difficult for that to occur.

May Seasonal issues

May End-of-month (EOM) Buy
May is not one of the best six EOM buys, but it isn't bad either. Historically, if one had bought the SPX on the second to last trading day of May and sold at the close on the third trading day of June (invested five days), they would have achieved:

  • 65% winning trades
  • Annualized return while invested of 46% (five times that of the average 9% SPX annual return).

(Recent history, 1990 to present has been slightly better.)

Pre-Memorial Day
It has long been known that the day before the Memorial Day weekend is historically bullish. However, this phenomenon has not performed well in recent years.

Historical Results 1942-1990

  • 81% winning trades
  • Annualized return while invested of 269% (30 times that of the average 9% SPX annual return).

Historical Results 1990-2003

  • 50% winning trades
  • Annualized return while invested of -17%.

Post-Memorial Day
The day after most holidays is considered historically bearish by most. However, for Memorial day that has not been the case. Historically from 1942 to present the day after Memorial Day has produced:

  • Only 47% winners
  • But during the time invested the SPX has appreciated at a 46% annual rate.

(Recent history, 1990 to present has been better.)

In summary we are in a bullish seasonal period until the close on June 3rd based on the May EOM buy. There are some mixed results about the bullishness/bearishness for the day before and after Memorial day.

Looking for an exit...

Even though the market should have a bullish tendency until Thursday June 3rd, the strong resistance at R1 is more important and should turn the SPX lower. So, how should one who looks to exit at R1 proceed? Here is a plan that makes sense:

  1. Sell on any day where the SPX high gets to 1130 or higher (as long as R1 is not obviously overcome).
  2. Use the THURS and FRID systems to decide whether to hold for the next couple days.

    THURS says to buy (or hold) at the close on Thursday if the Ratio (TR) of NYSE Advances / NYSE Declines is greater than 1.3. As I type at 11:50 am Mountain, TR is 1.50. Historically, THURS in May has been outstanding with 68% winners and the SPX appreciating at an annual rate of 88%.

    FRID says to buy (or hold) at the close on Friday if the Ratio (FR) of NYSE Advances / NYSE Declines is greater than 1.5. FRID in May has been outstanding with 62% winners and the SPX appreciating at an annual rate of 92%.

  3. Sell at the close on June 3rd if still invested.

SPX Summary

We will be following the steps in "Looking for an exit". If the SPX overcomes R1 in an explosive up-move we will hold all non-mechanical SPX positions.

Nasdaq 100 Technical Price Analysis

NDX Head-and-Shoulders Top (HST) and Descending Right Triangle (DRT)?

The NDX is currently running into stiff resistance from R2. The NDX is currently trading near the lows for the day which indicates how much selling there is and will be at R2.

NL marks the bottom boundary of a HST and a DRT. DRTs most often break out to the downside through horizontal support (NL). If NL fails, a HST will also be confirmed and there should be massive selling in the NDX down to below 1250.

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

The NDX-RS broke down out of a yearlong uptrending channel (S3) and had been falling for the last few months supported by S4. In the past, we predicted that a channel was forming bound at the top by R4 that has obviously come true. As you can see the NDX has strengthened since late March forming uptrending support S5.

It now seems that the NDX has barely broken out above R4. However, We would like to see a more significant breakout before we consider this bullish for the NDX.

Summary

We expect R2 to turn the NDX back downward. If the future HST/DRT scenario develops, serious money could be made with QQQ put options purchased as the NDX touches R2 and hoping for a drop to NL initially and eventually much lower if NL is overcome to the downside.

RUT Technical Price Analysis

RUT Testing Resistance

The RUT is running into S1 which should turn it back lower. If the RUT turns lower and cannot be supported by NL, a Head-and-shoulders Top (HST) would be confirmed calling for a drop in the RUT to around 460.

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

RUT-RS has rallied back up to test S2 and should now be turned back downward by R3.

Summary (No Change)

Considering the confirmed Broadening Formation, I will not consider non-mechanical positions in the RUT at this time.

 

XAU Technical Price Analysis

Where will the XAU Pause?

We caught the exact bottom in the XAU and are sitting on significant profits. There should be some resistance at R1 and we are looking to take profits when the XAU touches R1 or upon a break of S1.

 

DUALB Gold System in Real-Time

The DUALB Gold System has been in ULTRA since 1994. It was created by Jay Kaeppel and improved by Nelson Freeburg. Simply put, congratulations to those two geniuses. Real-time buy signals just can't get better than this. The profit from XAU call options that this buy signal has produced is simply amazing.

Historically since 12/05/84 to present, DUALB has produced:

  • 62% Winning Trades
  • A +1,173% return trading the XAU (which has returned +6.6% over the same period).
  • A 14% annual return while the XAU has returned 0.3% annually over the same period.

Interest Rate Analysis

Major Downtrend Resistance Break (No change since 5/10/04)

As you can see in the weekly chart of the US 5-year Treasury Note Yield above (TN), TN was resisted by R1 since early 2000. This line was finally overcome in early Late 2003 or April 2004 depending on how you look at it. But as I type, R1 is overcome.

In the move off the bottom, TN formed a nice flag bound by R4 at the top. The upside implication of this flag is the pre-flag move projected above the break of R4. This makes the objective just about R2 which is the level of and old low. (Old lows are often points of resistance on the way back up).

There is also uptrending support setting up as S1. If you project a parallel line you end up with R5 and an uptrending channel. (Since all markets often setup channels it's wise to expect that one form.)

Having said all that, I expect TN to continue upward inside the channel formed by S1/R5 until the upside implication of the flag is met at R2. At that point we should see TN consolidate sideways and begin to fall back to S1.

The scenario of

  • Stock market weakness,
  • An unexpected delay by the Fed in raising interest rates (or a minor rate hike then a statement of concern about market weakness),
  • And a new rally in the XAU.

All fits together perfectly and would be quite unexpected by the majority.

ULTRA's Recommended Strategies

 

Recommended Strategy Risk = LOW-MEDIUM

Recommended Index = SP500, XAU.
Strategy Positions are HERE .
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.