Joe F. Rocks!
Growth Stock Investor & Market Strategist

 

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Joe F. Rocks! Growth Stock Indicators Updated 8-25-03

Growth Stock Timeliness - Tuesday - Untimely (Weakness during much of Tuesday's session is a "hit!.")
                                       - Very Short Term (2-3 Days) - Untimely (NDX trendline sell signal on Friday August 22.)
                                       - Short Term (2-3 Weeks) - Timely (NDX experienced an intermediate term buy signal on August 19.)

Next Session Accuracy/Usefulness Rating - NASDAQ - 129 out of 157. 82.17% ("Hit!" NDX in positive territory during all of Thursday's trading and closed significantly higher.).
                                                                - Gold Stocks - 63 out of 86. 73.26% ("Hit!" XAU in negative territory during most of Monday's trading and closed significantly lower. XAU Put/Call Ratio portended weakness by remaining unchanged versus a significant decline in the XAU on Friday.).
 

The NASDAQ Composite (COMPX) opened slightly lower at 1763.78 on Monday, and, as Friday's NASDAQ TRIN (close at 0.76 trending sharply higher) and CBOE Put/Call Ratio (close at 0.91) correctly portended, COMPX was weak during the first half of the session before rebounding to close slightly lower at 1764.31, -1.01 (-0.06%).

The NASDAQ wall of worry (VXN (NASDAQ 100 Volatility Index) and QQV (QQQ Volatility Index)) shrank on Monday with VXN revealing that a modest rise in complacency occurred for NDX (NASDAQ 100) and QQV revealed that a modest rise in complacency occurred for QQQ (NASDAQ 100 Tracking Stock). The NASDAQ is deemed untimely on Tuesday. The CBOE Put/Call Ratio at an extremely high (at or above 1.05) level of 1.21 at Monday's close suggests there will be potentially severe weakness early on Tuesday followed by a significant rally. Better than expected economic data may result in Strength.

Williams %R for NDX/QQQ is now modestly below the sell area (above -20 (near the top) on my chart is the (look to) "sell" area). NDX and QQQ were trading in short term uptrending channels that began on Friday August 8 when the trendline of declining peaks was broken which was a trendline buy signal, but the dramatic spike above the short term uptrending channels on Friday as well as the dramatic trend change with closes in negative territory at the session lows indicates that both short term cycle highs and trendline sell signals occurred for NDX and QQQ on Friday August 22 which was confirmed by further weakness on Monday. 

A modest rise in complacency occurred for the NASDAQ 100 on Monday with VXN (NASDAQ 100 Volatility Index) falling -0.13 (-0.44%) to 29.34 while NDX (NASDAQ 100) rose +2.10 (+0.16%) to 1306.64 which reveals that a modest rise in complacency occurred for NDX because VXN fell modestly more in percentage terms than NDX rose (NDX wall of worry shrank) which portends weakness in NDX on Tuesday.

A modest rise in complacency occurred for QQQ (NASDAQ 100 Tracking Stock, +0.07 (+0.22%) to 32.51) on Monday since QQQ rose modestly less in percentage terms than QQV fell (QQQ Volatility Index, -0.13 (-0.53%) to 24.63) (QQQ wall of worry shrank) which portends weakness in QQQ on Tuesday.

On Monday VIX rose (+0.05 (+0.25%) to 20.32) versus a rise in OEX of +0.24 (+0.05%) to 497.66 which was a modest rise in fear for the S & P 100/value stocks (OEX is about 75% value stocks) since the wall of worry (VIX) rose modestly in percentage terms while OEX (S & P 100) rose slightly which normally portends strength in OEX on Tuesday but weakness is likely due to the modest rise in complacency that occurred for NDX and QQQ. 

The S & P 100 is deemed untimely on Tuesday but better than expected economic data may result in strength. OEX was trading in a short term uptrending channel that began on Friday August 8, but the trendline of rising troughs was broken on Friday August 22 which is a trendline sell signal. Williams %R for OEX is well below the sell area (above -20 (near the top) on my chart is the (look to) "sell" area). RSI and stochastics flashed sell on Friday August 22.

The CBOE Put/Call Ratio at an extremely high (at or above 1.05) level of 1.21 at Monday's close suggests there will be potentially severe weakness early on Tuesday followed by a significant rally because it's a reliable non-contrarian indicator of the next session's early action except at extremely high (at or above 1.05) or extremely low levels (at or below 0.50) where it sometimes is also a contrarian indicator (sometimes portends early substantial strength (below 0.50) or a sharp rally following early potentially severe weakness (at or above 1.05), judgement is involved).

The NASDAQ TRIN closed at a neutral level of 1.11 (modestly more activity in declining issues) trending lower on Monday which is neutral technically but the downtrend during the last hour of trading is a positive. A level between 0.35 and 0.80 is a bullish range for the NASDAQ TRIN because it indicates much more activity in rising issues. A NASDAQ TRIN above 1.00 indicates more activity in declining issues. A NASDAQ TRIN between 1.20 and 1.50 is a clearly bearish "red zone" range because it indicates much more activity in declining issues but not a very oversold condition. If the NASDAQ TRIN rises above 1.50 you can begin to look for a rally and if it rises above 2.00 that tends to be a reliable short term buy signal (very oversold condition).

NDX (NASDAQ 100) broke above (broke out) it's declining peaks trendline (in place since July 14's intermediate term cycle high of 1316.42) on Tuesday August 19 which is, as surprising as it seems, an intermediate term buy signal. It's surprising because VIX is at an extremely low level (below 20 at 19.71) which is an extreme of complacency typically seen near intermediate term cycle highs. The July 14 intermediate term cycle high of 1316.42 was taken out on Wednesday August 20 which confirms that a new intermediate term uptrend has begun. The massive amount of liquidity pumped into the system by the Fed and rock bottom money market rates are probably to thank for much of the surprising upside in the major averages this year.

Insider selling continued to send a very ominous signal in July with $2.4 Billion in insider selling (the figures in the table below exceed $2.4 Billion, reflecting the fact that some firms are in more than one index) versus a paltry $73 million in insider buying for nearly a 33 to 1 insider sell/buy ratio. July was only the seventh time in the past five years that insider buying failed to exceed $100 million.

The figures below reflect the fact that the major averages were dramatically overvalued in July.

Index	$ Value Sells	$ Value Buys	Sell / Buy Ratio
DOW 30	$635,054,476	$145,600	4,361.64
NASDAQ 100	$922,774,398	$7,711,916	119.66
S&P 500	$1,530,251,918	$10,981,511	139.35

The Insider Tech Sell-Buy exploded from below 20 (obviously a very bearish level) at about the time of the March 12 intermediate term cycle low to above 100 (absurdly "panic" bearish) in June. Net purchases shrank to a meager $2M in June??? Next time someone speaks of the "New Bull Market" or a "Cyclical Bull Market" try not to laugh too hard. I see the Dow falling to about 3000 in the next 2-3 years. It would have to approach 5000 right now (5200 or so) just to revert to the long term Bull Market trendline prior to going parabolic at the start of 1995. Bear Markets tend to bottom at PEs of 8. The S & P 500 PE recently was about 32. I rest my case.

OEX (S & P 100) experienced an intermediate term cycle high on June 17 at 512.67 but broke it's trend of declining peaks on Monday August 18 which is an intermediate term buy signal and indicates that the intermediate term cycle is heading up. Breaking above the previous intermediate term cycle high on June 17 at 512.67 will confirm that an intermediate term uptrend is in place.

Looking at NASDAQ 100 (NDX) Chicago Mercantile Exchange Commitments of Traders in all Futures Combined and Indicated Futures (Reportable Positions as of August 19, 2003), the speculators (hedge funds and other speculators/traders) added 3206 long contracts and added 67 short contracts which portends weakness (bullish bias with speculators being contrarian indicators) whereas the commercial traders sold 2267 long contracts and added 259 short contracts which portends weakness (non contrarian indicators (know what they're doing)).

American Association of Individual Investors (AAII) % bullish (AAII has been a useful non-contrarian sentiment indicator at extremely low levels below 40% bullish and extremely high levels above 60% bullish.) @ 63.0% bullish is a positive factor for the prospects of stocks during the week ending 8-29 because it's at a high level of bullishness.

Now I have some good news concerning gold/silver stocks! The intermediate term cycle is heading up. The intermediate term parabolic downtrending line of declining peaks in place for both HUI/XAU since June 19's intermediate term cycle high was broken to the upside dramatically on Wednesday July 23 (HUI rose 6.45% and the XAU rose 5.35%) which is an intermediate term buy signal, thanks in large part to massive short covering and a very sharp drop in the US dollar following Fed Governor Bernanke's speech indicating that the central bank is prepared to hold or cut interest rates (possibly to 0%) to spur the economy.

HUI and the XAU hit trendline sell signals (they broke below their very short term rising troughs trendlines) on Thursday August 21 and experienced short term cycle highs at 190.51 and 91.42 respectively late on Wednesday August 20 which missed my targets of 196-198 and 94-95 because the intermediate term trend wasn't following the expected trendlines.

The intermediate term channel HUI and the XAU are following is created by first connecting the highs since the late July high, then constructing a parallel lower line created by connecting the lows after the late July high. The previous intermediate term channel I was using included the lows since the intermediate term cycle low, then a parallel upper trendline was constructed which wasn't the correct intermediate term channel, hence the "miss" of Wednesday August 20's short term cycle highs at 190.51 and 91.42 respectively.

HUI hit a trendline buy signal (broke above the very short term declining peaks trendline) on Monday August 25 and experienced a very short term cycle low at 178.55 on Monday August 25. The preliminary very short term cycle high target range is 195-197 which may change once the uptrend line is established.

The XAU didn't hit a trendline buy signal on Monday but is likely to in the next session or two. 85.45, Monday August 25's low, may be the very short term cycle low.

There were definite signs (which I obviously missed though I did sell CDE and PAAS at the right time on Wednesday August 20 though not HL) that Wednesday August 20 was a very short term cycle high. HUI and the XAU both broke well above their short term uptrending channels. Also, Williams %R indicated a very overbought condition similar to what occurred at recent very short term cycle highs.

HUI and the XAU previously hit trendline buy signals (they broke above their very short term declining peaks trendlines) on Tuesday August 19 and experienced short term cycle lows at 176.79 and 86.00 respectively early on Tuesday August 19 which were direct "hits" with the short term cycle low target ranges for HUI and the XAU of 175-177 and 85-86 respectively. HUI rose with a vengence (+4.74%) to close at 186.29 on Tuesday August 19 and the XAU also rose with a vengence (+3.51%) to close at 89.42 on Tuesday August 19. Keep in mind that the gains were even larger from where the short term cycle lows occurred at 176.79 and 86.00 respectively.

HUI and the XAU previously hit trendline buy signals mid session on Thursday July 31 and experienced short term cycle highs on Thursday August 14. The short term cycle high targets  were 91-92 for the XAU and 185-187 for HUI. The XAU's short term cycle high was 89.01 on Thursday August 14 versus the 91-92 target range and HUI's short term cycle high was 184.02 on Thursday August 14 versus the 185-187 target range which was a "hit" for the system because HUI's actual came very close to the target range (within 0.53%) whereas the XAU missed the target range by 2.19%. The targets are derived using the short term channels/trends and the intermediate term channels since the intermediate term cycle lows occurred on July 16.

The XAU Put/Call Ratio for the September 19 expiration at an extremely high level of 1.148 as of Friday is sending a very bullish message for gold stocks. The low level in June/July of the now expired July XAU Put/Call Ratio at about 0.530 correctly portended weakness for much of July with an intermediate term cycle low for HUI and the XAU on July 16 at 140.68 and 73.41 respectively. The high level of the XAU Put/Call Ratio for the August 15 expiration at or near 0.905 recently is a high level of fear that's correctly portended strength in the second half of July and in August.

So, brace yourself, the extremely high level of the XAU Put/Call Ratio for the September 19 expiration at 1.148 is an extremely high level of fear that, in this case, appears to portend dramatic strength in the near future. I think the targets some have for HUI in the 210-230 range are reasonable. This is not a case of an unusually high level of fear portending weakness (non contrarian case for a contrarian indicator). The dramatic gains of many precious metals stocks recently on exploding volume and with selloffs tending to be accompanied by fairly light volume is a great sign technically.

The XAU Put/Call Ratio for the September 19 expiration at 1.148 on Monday versus 1.148 on Friday portends weakness on Tuesday (if it remains at that level) because it remained unchanged (0.00% vs a -1.10% decline in the XAU) in percentage terms versus the XAU falling significantly which is a significant rise in complacency (this indicator is generally a contrarian indicator except (sometimes) when an unusual rise in fear or complacency occurs it can be a non contrarian indicator). The dramatic/unusual rise in fear on Monday July 28 coincided with a very sharp selloff in the XAU after early strength from it's intraday high of 84.87 to it's low of 81.95. 

One should check the XAU Put/Call Ratio (for the August 15 expiration) very early in the session to see if it's changed significantly and determine wether fear or complacency has crept into the XAU. Simply divide the total put open interest by the total call open interest to arrive at the XAU Put/Call Ratio. If the XAU Put/Call Ratio (for the August 15 expiration) rises 2% and the XAU falls by 1% that's a delta of +1% which is a significant rise in fear.  A delta of -1% is a significant rise in complacency.

If fear rises by more than 6% that's an unusually large rise in fear that typically portends weakness (a relatively rare non contrarian case for this typically contrarian indicator) and if complacency rises by more than 6% that's an unusually large rise in complacency that typically portends strength (a relatively rare non contrarian case for this typically contrarian indicator). 

The fact that both gold and silver stocks "held up" well despite gold falling dramatically from $365ish to $345ish recently and silver falling dramatically from $5.25ish to $4.90ish recently supports the fact that HUI/XAU remain in intermediate term upcycles with probably much more upside once the metals finish their correction. Both gold and silver may have already completed their corrections. The precious metals stocks tend to be leading indicators. When they hold up well in the face of dramatic weakness in the metals that's a great sign for both the metals and the stocks.

One must remember that some precious metals stocks such as Newmont Mining (NEM) are dragged down at times by Index selling ("baskets" of stocks in an index are sold) on a weak day (up on a strong day) for the major averages such as Tuesday August 5. NEM is in the S & P 500. This probably accounts for NEM's weakness on Tuesday August 5 (down 1.49%) after early strength (up significantly early when the S & P 500 was modestly lower). The late session NEM weakness on Tuesday August 5 was a good buying opportunity created by basket selling of index stocks. NEM's ownership is 77% institutional.

Interestingly, gold has fairly reliable eight year cycles with cycle highs in late 1979, late 1987 and late 1995. This means that an eight year cycle high is due in about December 2003. If one assumes gold is in a long term Bull Market (a safe assumption given the major averages are in a long term Bear Market despite the current "cyclical" short Bull Market which has formed the right shoulder of a bearish long term head and shoulders pattern for the major averages) then the upcoming cycle high should exceed the previous cycle high of $415ish.

The silver stocks are attractive now given silver's breakout above it's year long triangle. Coeur D'Alene Mines Corp (CDE) is great now and Pan American (PAAS) as well as Hecla Mining (HL) are good trading vehicles but only CDE is on a very short term buy signal as of Monday, experiencing a trend change/trendline buy signal. They've all experienced breakouts well above their previous peaks on very strong volume. The very high volatility of the gold and especially the silver stocks the past four weeks ending August 22 portends strength just as a spike in implied volatility would.

The XAU Put/Call Ratio is a contrarian indicator BUT an unusual rise in fear with a contrarian indicator usually portends weakness (non contrarian case for contrarian indicators) and an unusual rise in complacency portends strength though I don't do anything mechanically in my work/system. One should always use all relevant indicators, tools, info, technical condition, channels/trends, wether the intermediate term cycle is heading up or down, fundamental factors such as expected weak economic data, etc. At times "keen analytical judgement" is involved.

The dramatic +6.60% rise in the XAU Put/Call Ratio for the August 15 expiration to 0.905 early on Tuesday August 5 was an unusually large rise in fear that correctly portended weakness on Tuesday August 5. 

The XAU Put/Call Ratio for the August 15 expiration remained steady at 0.835 on Wednesday July 23 despite a 5.35% rise in the XAU which correctly portended further strength on Thursday July 24. It's 9.35% rise to 0.936 early on Monday July 28 was an unusually large rise in fear that correctly portended the very sharp selloff after early strength (trendline sell signal occurred). It's close at 0.936 on Monday July 28 correctly portended weakness on Tuesday July 29.

With this approach really just one of the two target ranges needs to "hit" in order for the system to flash a warning/sell signal. A "miss" for only one of the index target ranges isn't a miss for the system. Two indices are required for this system precisely because their correlation isn't 100%.

When one of the target ranges is reached it's time to look for a trend change and either sell when the trend change occurs (rising troughs trendline breaks down), or, if one has very high confidence in the targets, sell some or all holdings prior to the indices flashing a sell/warning signal. Of course, one sells when a trendline breaks down for one or more of your holdings.

HUI and the XAU trendline sell signals occurred early on Monday July 28. My short term cycle low targets were 156-158 for HUI and 78-79 for the XAU with the actuals being 160.89 for HUI and 80.14 for the XAU which came within 1.83% and 1.44% of the target ranges respectively which are "hits." Greater than 2% is/may be considered a "miss" BUT the following paragraphs provide the detailed explanation of what's considered a "miss."

Targets for short term downcycles are somewhat problematic in an intermediate term uptrend but one either buys very near the targets OR buys when the very short term channel/downtrendline is broken (safer). So, one always knows when to buy with this approach.

If the channel/downtrendline is broken well before reaching the lower parabolic shaped intermediate term uptrend line AND the subsequent upcycle reachs the upper parabolic shaped intermediate term uptrend line targets then I won't consider the downcycle targets a miss because the approach worked and declines have a tendency to reverse course in an intermediate term uptrend.

Thus, a "miss" is only given when the approach doesn't work (bought or sold at the wrong time or didn't buy/sell at the right time depending on how one looks at it) such as overshooting upside or downside targets significantly OR falling well short of the target(s) for downcycles. This isn't about being a psychic but about having a system where one has very accurate upside/downside buy/sell targets OR sells when a uptrending channel/trendline fails in an intermediate term downtrend or buys when a downtrending channel/trendline is broken in an intermediate term uptrend. Since this approach is fairly new I obviously may finetune it over time.

The following is the HUI/XAU targets versus actuals data for the previous intermediate term downcycle using short term channels/trendlines and the parabolic downtrending HUI/XAU channels/trendlines:

HUI's short term uptrending channel/trendline intersected the upper parabolic intermediate term downtrend line at  Monday July 14's high of 153.47 (versus target of 154-155) which was the cycle high for the short term cycle and came within less than 1% of my target range.

XAU's short term uptrending channel/trendline intersected the upper parabolic intermediate term downtrend line at Tuesday July 15's high of 79.18 (versus target of 80) which was the cycle high for the short term cycle and came within 1.03% of my target.

HUI's short term downtrending channel/trendline intersected the lower parabolic intermediate term downtrend line at Thursday July 17's low of 140.68 (versus target of 142-143) which was the cycle low for the short term cycle and came within less than 1% of my target range.

XAU's short term downtrending channel/trendline intersected the lower parabolic intermediate term downtrend line at Wednesday July 16's low of 73.41 (versus target of 74) which was the cycle low for the short term cycle and came within less than 1% of my target.

HUI/XAU targets versus actuals batting average for the previous intermediate term downcycle = 4 for 4 = 100%.

HUI/XAU targets versus actuals batting average for the current intermediate term upcycle = 5 for 8 = 62.50%.  Only one of the two target ranges needs to "hit" in order for the system to "hit" as discussed previously. Two of the three misses were a result of using the wrong channel/trendline for one very short term upcycle. The system is sound.

Silver experienced an intermediate term cycle high at the top of it's triangle on July 10 at $4.89/ounce but broke out and closed at $5.06/ounce on Wednesday July 23 thanks to the massive short covering rally sparked by Fed Governor Bernanke's speech. 

Gold is locked in a triangle pattern since the beginning of the year which is why gold had a lower intermediate term cycle high (at about $373 for the Continuous Contract (EOD)($GOLD)) in late May than the prior intermediate term cycle high in early February (at about $379 for the Continuous Contract (EOD)($GOLD)).

Gold recently experienced an intermediate term cycle low in the neighborhood of $340. The following intermediate term cycle high was at about $365. An intermediate term cycle low may have recently occurred again at about $345 from which there is so little space left in the triangle that gold would almost have to break out in this cycle or have a very brief subsequent intermediate term downtrend that would quickly lead to a major upside breakout (assuming a Bull Market of course which is a safe assumption as long as the US Dollar remains in a long term downtrend) very shortly after it began.

Based upon where the tip of the triangle is the major breakout for gold should occur late this year or early next year. Since the gold stocks tend to lead the metal on both a long and intermediate term basis they experienced a major breakout (HUI did) months before the metal. Also, gold stocks began their Bull Market in November 2000 about a half year ahead of the metal which began a Bull Market mid year 2001.

One should have a chart of both indices with the parabolic intermediate term trends/channels drawn. Once a parabolic intermediate term channel/trend is broken decisively to the downside for either index a cycle high has probably occurred and it's time to sell. An intermediate term sell signal occurs when the parabolic intermediate term channel/trend breaks down. The lower short term cycle high in early July for HUI/XAU confirmed that the parabolic intermediate term channel/uptrend broke down but an intermediate term buy signal occurred on July 23 as previously discussed.

XAU (Philadelphia Gold and Silver Index) IV (Implied Volatility) Index composite (XAU wall of worry) is at 32.20 as of Friday's close.

On Tuesday August 19 there was a very sharp rise in gold stock fear since XAU (Philadelphia Gold and Silver Index) IV (Implied Volatility) Index composite (XAU wall of worry) rose 1.00% to 32.38% (from 32.06% on Monday: +0.32%/32.06% x 100%) versus the XAU rising +3.51% that correctly portended strength on Wednesday (XAU in positive territory during all of Wednesday's trading and closed significantly higher at 91.18, +1.76, +1.97%.) because (the XAU wall of worry grew substantially) XAU implied volatility rose significantly in percentage terms while the XAU rose very sharply.

HUI (AMEX Gold Bugs Index) stochastics, ROC, RSI, and MACD (slightly below it's moving average) are on a  sell signal to ignore as long as the intermediate term channel remains intact. HUI is on a short term "sell" signal but hit a very short term cycle low on Monday August 25 as discussed earlier.

Silver broke out of it's giant triangle pattern (past year or so) on July 23 with a close at $5.06/ounce. 

Intermediate term cycles tend to follow parabolic patterns. Both HUI/XAU will probably soon have parabolic shaped intermediate term uptrending channels/trends.

The fact that volume for the gold stocks was very high on Wednesday July 23 when the intermediate term buy signal occurred is another major positive.

The previous intermediate term cycle high occurred for both HUI/XAU on June 19. This is because both indices made lower short term cycle highs than their previous short term cycle high which indicates that 157.82 on June 19 was the previous intermediate term cycle high for HUI (112.61 intermediate term cycle low on March 12) and 82.89 on June 19 was the previous intermediate term cycle high for the XAU (62.08 intermediate term cycle low on March 12).

HUI's ascending triangle bottom trendline suggested that an intermediate term cycle low would occur above 120 versus 112.61 at the March 12 intermediate term cycle low, 102.99 at the October 10, 2002 intermediate term cycle low, and 92.82 at the July 26, 2002 intermediate term cycle low. 123 was a reasonable swag for the intermediate term cycle low but it occurred at 140.68 on Wednesday July 16.

Gold experienced an intermediate term cycle low (near the bottom of it's uptrending price channel) on Monday 4-7 with a session low of $319.20. Gold fell a bit below the bottom of it's "hidden channel" on Monday 4-7. In late May gold experienced an intermediate term cycle high near $375. It appears that seasonality (linked to gold's cycles) is a major factor for gold stocks.

Looking at "CFTC Commitment of Traders Combined Futures and Options" for gold (Reportable Positions as of August 19, 2003), the speculators (hedge funds and other speculators/traders) added an unusually large 20,113 long contracts which portends strength (rare non contrarian case for this usually contrarian indicator) and covered an unusually large (about 28% of their total short position) 4172 short contracts which portends strength (rare non contrarian case for this usually contrarian indicator) whereas the commercial traders added 3210 long contracts which portends strength (non contrarian indicator) and added an unusually large 28,421 short contracts which portends strength (rare contrarian case for this usually non contrarian indicator). How about that!

Looking at "CFTC Commitment of Traders Combined Futures and Options" for silver (Reportable Positions as of August 19, 2003), the speculators (hedge funds and other speculators/traders) sold a large 2904 long contracts and covered 373 short contracts whereas the commercial traders sold 25 long contracts and added 2857 short contracts. The bearish posture of the speculators is a positive (contrarian indicator) and the bearish posture of the commercial traders (non contrarian indicators (know what they're doing)) is a negative but the fact that their net long position was little changed is a positive. 

For the US Dollar (USD) commercial traders (U.S. DOLLAR INDEX - NEW YORK COTTON EXCHANGE as of Tuesday August 19, 2003) sold 51 long futures contracts and added 89 short futures contracts which portends weakness in the USD (non contrarian indicators (know what they're doing)) and is a positive factor for gold in USD terms. The speculators (hedge funds and other speculators/traders) sold 377 long futures contracts and added 367 short futures contracts which is bullish (contrarian indicator) for the USD and a negative factor for gold in USD terms.

For the Euro commercial traders (FX - CHICAGO MERCANTILE EXCHANGE as of August 19, 2003) added 898 long futures contracts and covered 12,267 short futures contracts which portends strength in the Euro and is bullish for gold in USD terms. The speculators (hedge funds and other speculators/traders) sold 1575 long futures contracts and added 4006 short futures contracts which portends strength (contrarian indicator) in the Euro and is bullish for gold in USD terms.

Keep in mind that the metal lags the gold stocks on a long term (and apparently usually on an intermediate term basis with an intermediate term cycle high in early February versus the stocks peaking in January and an intermediate term cycle low on April 7 nearly a month after the stocks hit an intermediate term cycle low on March 13) basis. The metal recently had an enormous rally from the $300/Ounce area to about $388. It played catchup with the HUI which is a good sign (HUI rose 70-75% in both 2001 and 2002, outperforming the metal, and began it's Bull Market in late 2000 about 5-6 months before the metal).

A gold stock Bull Market (The New Bull Market!) began in late 2000. I suspect there will be a huge rally again this year as occurred in 2001 and 2002. Short covering will be a major factor because the gold stock market is still a relatively small one.

Look for gold to trend higher this year and long term. $330.00, a major resistance level, was broken on Thursday 12-12-02. There might be a lot of money to be made in the gold stocks during the next few weeks but keep in mind they tend to be extremely volatile as they have been recently. The 50 basis point Fed rate cut at the November 6 FOMC and the 25 basis point rate cut at the June 25 FOMC are major positives for gold stocks. The rapid growth in the money supply is a major positive for the precious metals. The Fed is in the unenviable position of having to inflate (decrease the dollar's value) in order to keep the economy afloat.

Thursday 12-12's major breakout above $330/ounce confirms a likely long term Bull Market for gold and is a major long term buy signal.

At late May's intermediate term cycle high gold volatility became very high which correctly indicated there would be a major move down. The spike up in volatility accompanied the very sharp rise to the $375 area and correctly identified an intermediate term cycle high in gold. It appears that extremely low volatility marks gold bottoms and extremely high volatility marks important tops which is the opposite of what happens with the major averages where extremely low volatility marks tops and extremely high volatility marks bottoms on both a short and intermediate term basis (The extreme cycle low on 9-21-01 occurred at an extreme of volatility that saw VXN rise above 91. A sell signal occurred in March 2002 when VXN fell below 40 because it indicated that an extreme of low volatility was near. All the major averages (growth and value) began trending lower at that time though the major NASDAQ averages began trending lower in early January because growth stocks hit a cycle high at that time.).

VXN is new as of January 2001 so not enough data exists yet to be a statistically meaningful sample size but identifying major deltas in fear (Delta VIX/VXN) and peaks in VIX/VXN can identify likely cycle highs and lows. The principle of a major rise (delta) in fear or complacency leading to major rallies/declines in the major averages is a sound one as is the degree that fear or complacency creeps into the market as it rallies/declines (how well the wall of worry holds up) portending strength (when fear creeps in) or weakness (when complacency creeps in). This chart of the percentage moves in VIX and VXN versus the S & P 500 (SPX), the Dow (DJIA), and the NASDAQ Composite (COMPX) illustrates that sound principle of market timing.

Two extremes of fear (VIX hit the extreme level of 50+ on 7-24-02 and 10-10-02 and VXN rose to moderately high levels of 69+ and 64+ respectively on those dates) in 2002 led to (triggered) intermediate term cycle lows. When VIX and VXN both exceeded extreme levels (of 50 & 80 respectively) on 9-21-01 (VXN hit 91+) a healthy long intermediate term (6 month+) cycle ensued (an extreme intermediate term cycle low/major bottom occurred).

Value stock volatility (VIX, OEX Volatility Index, is mostly value stock volatility because the S & P 100 appears to be about 75-80% value stocks. VIX largely reflects value stock volatility) isn't running ahead of growth stock volatility as it did when the July 24, 2002 and October 10, 2002 intermediate term cycle lows occurred because VIX is at a very low level (below 25) at 20.32 as of Monday's close and VXN is also at a very low level (below 40) of implied volatility/fear at 29.34. For VXN to be at a "high" level of implied volatility/fear it would be at or above 60 which is where it was (at 64+) when the October 10 (the second "VIX 50.00" moderate cycle low in 2002) intermediate term cycle began. Growth stocks are much more volatile than value stocks hence the differing levels for "high" implied volatility, "very high" implied volatility, etc. for VIX and VXN.

The disparity between growth and value stock implied volatility/fear is "preventing" an extreme cycle low by triggering an intermediate term cycle low before NASDAQ/growth stock implied volatility/fear (VXN/QQV) becomes extreme (occurred twice in 2002). I think VXN must at least reach 75 and probably near or above 80 before an extreme cycle low can occur. It reached 91+ when the last extreme cycle low on 9-21-01 occurred as I've discussed previously. It also spiked above 80 when the April 2001 cycle low occurred. We got another "VIX 50.00 rally" (moderate cycle low) on 10-10-02 and a very moderate cycle low on March 12 when VIX rose to 40ish but VXN was only at 43ish.

The moderate intermediate term cycles after the July 24, 2002 cycle low (and after the October 10, 2002 and March 12 cycle lows) strongly supports my view that VXN must approach or exceed 80 as it has in recent intermediate term cycle lows (growth stock fear must become extreme) in order for a true extreme cycle low (major bottom) to occur.

At true extreme cycle lows fear becomes much more extreme than it did on 7-24-02, 10-10-02, and 3-13-03 (VXN at about 70 on 7-24-02, at 64 on 10-10-02, and at 43 on 3-13-03. Spiked to 91+ at the September 21, 2001 cycle low and well above 80 when the April 2001 cycle low occurred). Also, complacency doesn't creep back into the market as quickly as it did during the recent moderate intermediate term cycles after 7-24-02, 10-10-02, and 3-12-03. In other words, buckle up!

People who mechanically rely on one indicator such as VIX tend to get into trouble. This is why I look at a variety of primary indicators such as VXN, QQV, VIX, Advance/Decline Ratio, Up/Down Volume, total volume, money flow, Investor's Intelligence survey of advisor bullishness, etc. I would call the July 24 and the October 10 Bear Market lows moderate intermediate term cycle lows because VIX reached an extreme level of 50+ but VXN fell well short of an extreme 80+ (it rose to about 70 on 7-24-02 and 64 on 10-10-02. Spiked to 91+ on 9-21-01).

Intermediate term cycles tend to be 3-12 months in duration in recent years. There were two intermediate term cycle lows in 2001 (April and September) with September 21, 2001's being a major bottom (extreme intermediate term cycle low where VIX > 50 and VXN > 91 on 9-21-01).

Since there was an enormous rise in complacency during the intermediate term upcycle after the March 12 very moderate (VIX rose to a respectable 40+ but VXN only rose to 43+) intermediate term cycle low (VIX, VXN, and QQV fell dramatically), the primary growth stock indicators portend an intermediate term cycle high in the near future (may have occurred on June 17 for the S & P 100 (mostly value) and on July 14 for the NASDAQ 100 (mostly growth)).

Breadth, a primary fundamental indicator, was negative on Monday with NASDAQ A/D at better than 9:7 in favor of declining issues and NASDAQ Up/Down Volume was in favor of down volume by 3:2. When an intermediate term cycle low occurs and a new upcycle begins breadth should turn convincingly positive during the early high fear part of the cycle. Growth (NASDAQ is mostly growth) will be more timely than value (NYSE is mostly value) but both should rise sharply during the early high fear (VXN > 60, VIX > 30) part of the cycle.

VXN is at 29.34 as of Monday and I expect it to briefly spike above 80 and possibly even 90 the day an extreme cycle low (major bottom) occurs. It's likely that will be the only day that VXN spikes above 80, especially if it rises above 90. The more extreme fear becomes the more likely a "V" shaped cycle low occurs as opposed to a "W" shaped retest cycle low occurring probably as a result of a more moderate peak level of fear. VIX (OEX/value stock implied volatility) reaching 50+ is another likely indication that an intermediate term cycle low will occur (be triggered by an extreme of fear) soon, but is a much less extreme cycle low than when VXN (growth stock volatility) reaches 80+.

A great trading opportunity may occur in the next few months. Keep in mind that from the September 21, 2001 COMPX intermediate term cycle low of 1387 to the intermediate term cycle high in early January 2002 of about 2100 COMPX gained about 50% in three and a half months. So, a very nice gain will probably result if one buys QQQ near the cycle low and exits once a complacent, fairly low volatility market arises.

One needs to keep in mind that the sentiment picture can change drastically in a few hours or even less from what I discussed using the previous close's sentiment figures. It's important to look at VXN intraday and compare it to the figure I discuss from the previous session's close. If fear rises substantially (large + Delta VXN) that portends a rally and if complacency jumps (large - Delta VXN) substantially that portends weakness. An unexpectedly large jump in fear or complacency can dramatically change the very short term sentiment picture.

It's important to remember that when capitulation becomes a major factor that fear/volatility (VXN) can rise dramatically and though that normally would portend a nice rally, a lag time arises and one has to wait for the cycle low to go long QQQ once serious capitulation begins. The steep drop and quick snapback at NASDAQ cycle lows tends to form a V (a retest of the cycle low is a possibility also which is a W).

I suspect that the more extreme fear/volatility becomes (VXN spiking above 90 to 91+ as it did on 9-21-01 when the last extreme cycle low (major bottom) occurred) the more likely a "V" will occur and a more moderate peak level of fear/volatility (VXN failing to reach 80) greatly increases the likelihood of a "W" pattern (retest and potential double bottom formation) cycle low occurring.

The low level of implied volatility/fear (as of 6-30-03) has a high correlation with a low level of volatility. Daily moves in COMPX on the order of 1%+ aren't surprising. Volatility (VXN) may rise sharply in the next few sessions because the intermediate term cycle is probably heading down and implied volatility (fear) tends to rise as the market falls.

If you buy QQQ at the wrong time you might experience substantial downside. Buying very near the cycle low takes nerves of steel and is only for highly skilled traders due to the extreme volatility. Don't try this at home unless maybe you are a highly skilled trader or you can live with a great deal of risk. For neophytes IF you try to trade the gold stocks or QQQ (or any highly volatile stock) you should only be using a modest amount of risk capital and should have a risk mitigation strategy.

Happy trading, may the force be with you,

Joe F. Rocks!

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The dashed lines above are for the folks at Trading-Ideas.Com and AfterHourTrades.Com so they know which commentary to use.

When using this site I suggest that you might need to open the home page in a number of different windows. You might want to access a number of pages at the same time such as this page, Astrikos real time VXN, Astrikos real time COMPX, etc. I added more real time resources to help time the upcoming cycle low and to improve the short term trading resources.

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Investor's Intelligence @ 58.60% of advisors bullish (On 6-11) - Investor's Intelligence is a primary barometer of the timeliness of growth stocks.
 

NASDAQ "Institutional" (really block trading data that includes individuals as well) Money Flow (Primary growth stock indicator) for the week ending 8-8 = Positive (possibly due to short selling on upticks). Uptick block trades outpaced downtick block trades (851 more uptick blocks) by 2.48% (1.05%, 1.28%, 1.76% more upticks the prior three weeks, 1.99%, 2.61% more downticks the prior two weeks, 2.04% more uptick blocks the prior week, 0.66% more downtick blocks the prior week, 1.13% more uptick blocks the prior week, 1.74%, 4.84% more downtick blocks the prior two weeks, 2.20% more uptick blocks the prior week, 1.53% more downticks the prior week, 0.59% more upticks the prior week, 1.65%, 0.74%, 1.72% more downticks the prior three weeks, 5.67%, 2.54%, 0.80% more upticks the prior three weeks, 1.36% more downticks the prior week, 1.27%, 2.98%, 2.86%, 1.58%, 2.42%, 3.97%, 2.87%, 4.46%, 3.58% more upticks the prior nine weeks, 0.70% more downticks the prior week, 0.35% more upticks the prior week, 0.78%, 0.76% more downticks the prior two weeks, 2.96%, 1.86%, 0.07% more upticks the prior three weeks, 0.98% more downticks the prior week, 0.61%, 0.29%, 1.80% more upticks the prior three weeks, 0.84% more downticks the prior week, 1.02% more upticks the prior week, 0.91%, 0.94%, 1.21% more downticks the prior three weeks, 1.34%, 1.23%, 0.53%, 0.08% more upticks the prior four weeks, 1.14%, 1.57% more downticks the previous two weeks, 0.24% more upticks the prior week, 1.71%, 2.90%, 0.70% more downticks the previous three weeks, 0.74% more upticks the previous week, 2.81%, 2.32% more downticks the previous two weeks, 0.82%, 1.23%, 1.08%, 0.40% more upticks the previous four weeks, 0.57%, 3.28%, 0.45%, 2.16%, 0.76%, 1.13%, 2.39%, 0.19% more downticks the previous eight weeks, 1.07% more upticks the week before that, 2.34%, 3.49%, 3.52%, 2.34%, 1.15% , 0.69%, 0.89%, 1.49%, 0.87%,  2.48% more downticks the previous ten weeks. 1.20%, 1.50% and 0.60% more upticks the three weeks before that.).

The trend has been (past 36 months) 1% more downtick blocks than uptick blocks each week on average .

NYSE block trading data reveals very strong net buying for the week ending 8-8 though I don't tally it. Inflows have been very strong in recent months. This bodes well for a very strong rebound in the Dow and NYSE Composite (value stocks) after an extreme cycle low (major bottom) occurs.

This page will probably be updated after nearly each session (except when I'm on vacation or an occasional other circumstance arises) and may become a subscription page at some point. I plan to keep the rest of the site free however.

To keep apprised of updates to Joe F. Rocks! the Mind-it site appears useful though I haven't used it personally.

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