| Issue #28 |
The
ULTRA Timer Report
|
June
14, 2004
|
SPX Technical Price Analysis
SPX Turned back by Resistance (R2) ???
Technical Analysis is not a perfect thing. It is an art. We say that because of the recent action at R2. In our opinion the SPX clearly broke out above R2 on 6/8/04. But that now looks to be a false breakout. However, If you step back from the chart above, it looks like the downtrending channel (R2/S2) is still perfectly intact. If the SPX falls back down to S2 it will be easy to argue that R2 turned the SPX back downward.
If one went long upon the 6/8/04 "breakout", they could still be correct. We'd certainly like to have seen upside follow though after the breakout or after the retest of R2. But instead, the SPX dropped back below R2. The SPX has found support on S1 and this support could be strong launching the SPX much higher. However if S1 fails, it becomes very likely that the next significant move for the SPX will be down.
If one did not go long upon the "breakout", they probably feel pretty good about themselves right about now. However, the fact that R2 was overcome (albeit temporarily) is not good news for bears. If the SPX rallies off S1 and can overcome the recent top at 1140 on a closing basis, we'd then have to admit that the "breakout" was probably real and that the "retest" of R2 was falsely overdone to the downside.
SPX Summary
We think that because the SPX was unable to remain above the channel that S1 will fail and the next few weeks will be to the downside. We will remain 100% cash in non-mechanical accounts unless the SPX can close obviously above 1140.
Nasdaq 100 Technical Price Analysis
NDX Head-and-Shoulders Top (HST) ???
The "breakout" in the NDX was even more obvious. Today, the NDX broke down below its short-term uptrend support S1 which would seem to indicate that the SPX should soon follow suit and break down. In recent history each break of steep NDX uptrend lines like S1 have resulted in significant downside.
Further weakness on Tuesday in the NDX would be increasingly bearish.
On the longer term, if the NDX drops down to NL and breaks down below, it would be a very bearish sign implying a further drop to around 1200.
Horizontal resistance R3 (1500) has now turned the NDX downward four times in the last few months. Since the downsloping R2 should now become irrelevant, R3 should become the primary resistance.
NDX Relative Strength (NDX-RS=NDX/SPX)
There is conflicting technical information in many charts. The NDX-RS broke up out of a downtrending channel and is now being resisted by the horizontal R5. The break above R4 was relatively bullish. Another break above R5 would be increasingly bullish for the NDX as compared to the SPX.
Summary
Considering the recent failure of S1 we will avoid the NDX unless it can close over 1500 (R3) while overcoming R5 as well. R5 has turned the NDX downward four times in the last few months. Overcoming horizontal resistance is generally difficult and powerfully bullish.
If the NDX falls to NL while NDX-RS remains strong (above S5), it would be very tempting to pick the bottom by buying QQQ calls.
RUT Technical Price Analysis
False Breakout in the RUT also Testing Resistance
As you can see above the RUT broke out above R1 slightly but it now looks to be a false breakout. If the RUT continues 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 R3 and was turned back downward. The RUT should continue to be relatively weak. RUT-RS should trend downward in the R3/S3 channel..
Summary
We will not consider non-mechanical positions long positions in the RUT at this time. The RUT looks to be the weakest of the stock indexes.
XAU Technical Price Analysis
Back to test very Long-Term Support.
We caught the exact bottom in the XAU last time it tested S1. Today S1 was tested again as the XAU closed at 80.79. We are again buying the XAU at S1 and will continue to do so unless S1 is violated on a weekly closing basis. Again we are looking to exit around 90.
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.
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, we 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.
ULTRA Timer Report (UTR) Q&A for Steve Hunter
It seems that the UTR ignores timing systems. Does that mean you don't use them?
Not in the least. I consider the mechancial strategies in ULTRA to speak for themselves and therefore I do not discuss them in the UTR. In my opinion the power of mechanical strategies is that they do not require any expert analysis to follow.
I personally allow mechanical strategies to manage 75% of my liquid investment capital. I almost never use discretion with mechanical strategies. Whatever positions those strategies recommend, I take. The exception would be if my mechanical strategies were highly invested and a break of horizontal support in late summer / fall were to occur. In that case, I would probably lighten up my positions because I consider that scenario to be the most bearish that can occur. Rest assured I would tell UTR readers that I am so bearish that I'm suspending my mechancial strategies.
The other 25% of my liquid capital I invest using discretion. Since I have been studying technical analysis methods for over 20 years I believe that I can utilize them to improve my overall perfomance in some cases. However, I do not want the pressure of managing all my capital using discretion. Also, I will sometimes use the 25% to hedge against my mechancial strategies. For example, if my mechanical strategies were 100% invested and I was not wildly bullish I would keep my discretionary capital in cash even though the technical indicators may lead me to have a bullish opinion.
ULTRA's Recommended Strategies
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.