Despite the stock market having a major correction this past summer, our results were strong for 2006. The fall that started in May was only a correction, so we made the correct call by being long for all of 2006. According to TimerTrac, this yielded the results of 14.6% for SPY, 16.9% for IWM, and 6.5% for QQQQ. Our 401k allocation ended up over 17% this year. Even though we would like results even higher than this, for a year with a major correction and extremely low volatility, we were extremely happy with our results. Putting the percentage gains aside, the correct long-term play was to be long all year and we are happy our system never triggered a sell signal.

A 2006 chart of the Russell 2000 is shown below. We have included this to show how at one point we were break-even for the year (June and July), yet IWM was still able to yield 16.9% for the year by having a year long buy signal. By looking at this chart it is easy to see why patience is important in long-term market timing.

The second chart is of the NASDAQ Composite. The index is still in the same rectangle formation it has been in for several weeks now. A sustained break above 2470 will begin the new leg higher.

We still believe that the S&P 500 is headed to the resistance lines shown on the chart. Any pullback should sustain itself to the lower support lines (1390 area).

The Russell 2000 is either in a rectangle, head and shoulder, or ascending triangle formation. It is too difficult to know, but it is extremely positive that the index was able to bounce off of its 50 day moving average today. A sustained break above 800 will signal the beginning of the next leg.