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Smart Trades Report: 8 - 5 - 2005

Bill Wynne: 800-249-9401 or 775-831-0389

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1-10-2005: The SPX rallied as expected, but has yet to reach my ideal target near 1250. The high so far is near 1218, and breadth diverged negatively on that high. Once again this could be a potential intermediate term top or a short term correction with a final rally to 1250-1260 yet to come. Either way the SPX is probably heading lower short term. If new highs are coming the SPX should find support between 1155-1165. A close below 1130 breaks the longer term uptrend and nixes new high potential. "Wave 2" lasted about a month, so this decline, even if it is corrective, could last into early February. Daily SPX chart with the total US Stock A-D line below:

1-25-2005: The SPX has declined as expected. So far the low is near 1164. I said: "If new highs are coming the SPX should find support between 1155-1165." Breadth has been improving for several days and sported a bullish divergence on the 1164 low. This could be a short term bottom, but retests or a secondary somewhat lower low are certainly possible. Nonetheless, I'm again near term bullish on corrective declines or retests that hold at least above 1155. Please see the SPX chart below. Note the 1164 low (iv) is a near perfect retest of the previous resistance level marked by the March 2004 high (3: blue dotted line). It also is a nice test of the parallel trend channel (green line). Some "throw-over" beyond the channel is normal, so I wouldn't be surprised by slightly lower lows.

1-27-2005: So far the SPX low near 1164 has held. The rally has had a corrective pattern in spite of the best closing breadth ratios since December 28th. That combination is consistent with the idea of another decline that should ultimately hold support. Internal short term calculations pinpoint 1153.50, and longer term retracement zones from the August and October lows are 1157 and 1154 respectively, so we will adjust the potential ideal range down just a bit to 1153-1154. A close below 1150 would call the bullish pattern into doubt. Next support is just below 1140.

2-1-2005: The SPX dropped down and tested the 1164 low (holding above 1166) just hours after my last report: "consistent with the idea of another decline that should ultimately hold support". I may have been too cute adjusting "the potential ideal range down just a bit to 1153-1154". Breadth has improved once again and as I write the SPX is up against resistance near 1188. A strong rally through 1188 should negate the potential decline to 1153-1154. Either way, as long as 1150 holds, the longer term picture calls for a rally back through 1218 and perhaps as high as my long stated 1250-1260 target.

2-15-2005: The SPX has carved out "5 up" on the hourly chart from the lows near 1164 on January 24, 2005. Breadth and momentum are showing bearish divergences. Although ideal targets for *the* top are 1234 or better yet the 1250-1260 zone, a short term top is possible right here and right now. Moreover, it could be *the* top. I will look to sell corrective rallies that fail under today's high (1212), or moderate new highs that fail to follow through. A corrective decline should find support in the 1175-1195 zone. A close under the 1164 low breaks the uptrend at least for now. A close back above 1215 on improving breadth breaks the short term bearish outlook. SPX daily chart below.

2-18-2005: I said: "Look to sell corrective rallies that fail under today's high (1212), or moderate new highs that fail to follow through." The SPX rallied to 1212.44 and sold off to nearly 1197. Even if this is a corrective decline I'd expect another leg down after a small rally (resistance is near 1205). The minimum downside target is 1194, then 1188 and 1182. A rally back through 1212 eliminates the short term bearish outlook. A drop much below 1175 suggests this is an important intermediate top.

3-2-2005: On 2-18-05 I said: "expect another leg down after a small rally (resistance is near 1205)". The SPX rallied to 1202.90 later that day. Also "the minimum downside target is 1194, then 1188 and 1182" and on 2-15-05 I said: "a corrective decline should find support in the 1175-1195 zone." On 2-22-05 the SPX bottomed under 1185 right in the middle of the "zone". The SPX is at 1214 as I write, but the A-D line has a bearish divergence. The extent any potential decline isn't clear to me, but if the breadth doesn't kick up soon, another decline at least into the upper end of the "zone" is likely.

3-4-2005: The SPX dipped a bit from the 1214 area, but found support at previous resistance near 1205 and failed to decline back into the "zone". Breadth has improved back above the +1500 level which negates the short term bearish outlook.

3-30-2005: The SPX has been in a persistent decline since hitting 1229 on March 7th. The fact that the rally from the January 24th low near 1164 to the high near 1229 breaks down cleanly into an "ABC" rally (two nearly equal legs up, one leg down (see chart below)) favors that the entire consolidation pattern since the January 3rd high (near 1218) is corrective. The SPX may have bottomed yesterday near 1164. I will look to buy corrective declines or new lows that hold the 1155 or 1140 as long as breadth shows bullish divergences.

8-5-2005: The SPX finally tested "my long stated 1250-1260 target." So far the high on August 3, 2005 is 1245.80. The rally had bearish breadth and momentum divergences (please see the chart below), so it is possible this is "the" top. Nonetheless, potential exists for another test into the 1250-1260 zone. If that occurs the SPX should find support near 1220 or higher (so far the low is near 1226). Some sideways action may set the stage for a classic late August or early September rally to a final (intermediate term) top. A closing break of 1220 would call the rally potential into question. FWIW, the 1240 level is also a 61.8% retracement of the entire decline from September 2000 high to the October 2002 low. The 1253 level is a 61.8 % retracement measured from the ultimate SPX high from March 2000. A strong rally and close above 1265 sets the stage for a rally to 1316. Please see chart at bottom for a longer term view.

The report is hypothetically: Flat.

NO CLAIMS ARE MADE THAT THESE TRADES WERE MADE OR THAT THEY WERE ACTUALLY

PROFITABLE. This report is no more and no less the one man's opinion: use it with caution!

Cancel all specific entries if price is exceeded on an opening gap (i.e., wait to place entry stops until after the open). Aggressive traders may wish to cancel tight stops on the open, and replace those stops 3 ticks below the Opening Range Low 15 - 30 minutes after the open when long.

Reverse the process (i.e., 3 ticks above the Open Range High) if short.

Legend:"ORB" is short for Opening Range Breakout.

"Hook" is a small bull or bear flag type of pattern I use with other

patterns. Enter on breakouts.

"NR" and "NR7" are Narrow Range and most Narrow Range of the last 7 days.

"ABC" is short for an Elliott Wave corrective pattern against the larger

trend.

"Correction" or "corrective" tends to be a choppy move against the larger trend.

"Gap" is a price jump on a bar chart. In other words the market opened above or below a previous close.

"Resistance" is an area which a market may have difficulty rising above.

"Support" is an area which a market may have difficulty declining below.

"5 up/down" is short for an Elliott Wave pattern terminating a move after the "fifth wave" is completed.

"Impulse" is a sharp move in the direction of the trend.

"ID" is Inside Day (High is lower and Low is higher than previous day's Highs and Lows).

"Doji" is a "candlestick" pattern where the open and close are nearly the same.

"ROC" is the 2 day Rate of Change indicator.

"ADX" is the Average Directional Index. Measures trend power or lack thereof.

"A/D ratio" is the NYSE ratio of Advancing Stocks - Declining Stocks.

"1-2 low" is a move up off a low followed by a retracement down to a higher low.

"1-2 high" is a move down off a high followed by a retracement up to a lower high.

"Trend Line Hook" is a congestion pattern at or near a trendline. I play the breakout of this pattern if it is confirmed by my

indicators.

"Fibo" is short for Fibonacci the 13th century mathematician who rediscovered the so called "golden ratio."

Used in large part by the Egyptians for the dimensions of the pyramids, and the Greeks in their architecture,

the ratio 1.618 (or .618) is widely known as one of the mathematical building blocks.

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