Joe F. Rocks!
Growth Stock Investor & Market Strategist

Joe F. Rocks! Trade the Cycles Updated 10-2-05

Growth Stock (NASDAQ) Timeliness - Monday - Untimely (Weakness/a downtrend, that could follow a gap up at the open and early strength, during "much" of Monday's session is a "hit!.")
                                                           - Short Term Cycle (2-3 Days) - Untimely (NDX/QQQ are in short term upcycles as of 9-30-05 but cycle highs appear imminent.)
                                                           - Minor Intermediate Term Cycle (3-6 Weeks) - Timely but Risky (NDX minor intermediate term upcycle is in place as of 9-30-05 but the major upcycle trendline broke down.)

Brief Cycles Summary (Analysis/Commentary follows)

NASDAQ 100 Very Long Term Downcycle/Secular Bear Market = Down since March 24, 2000 Bull Market peak/very long term cycle high at 4816.35.

NASDAQ 100 Long Term Cycle = Up since long term cycle low at 1301.93 on 8-13-04.

S & P 500 Very Long Term Downcycle/Secular Bear Market = Down since March 24, 2000 Bull Market peak/very long term cycle high at 1552.87.

S & P 500 Long Term Cycle = Up since 8-13-04 long term cycle low at 1060.72. SPX is working it's way up to the very long term downcycle trendline.

XAU (Philadelphia Gold/Silver Index) Very Long Term Upcycle/Secular Bull Market = Began October 25, 2000 at 41.61 Bear Market/very long term cycle low.

XAU (Philadelphia Gold/Silver Index) Long Term Cycle (heading up) = Began May 10, 2004 at 76.79 long term cycle low. Long term cycle high occurred at 113.41 on 1-6-04.

HUI (AMEX Gold Bugs Index) Very Long Term Upcycle/Secular Bull Market = Began on November 15, 2000 at 35.31 Bear Market/very long term cycle low. 

HUI (AMEX Gold Bugs Index) Long Term Cycle (heading up) = Began May 10, 2004 at 163.81 long term cycle low. Long term cycle high occurred at 258.60 on 12-2-03.

Please see Cycles Summary for the details of the cycles that are the basis for my market timing system.

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Analysis/Commentary -

The NASDAQ Composite (COMPX) opened slightly lower on Friday 9-30, but, COMPX trended higher much of the session, spent much of the session in positive territory, and closed modestly higher at 2151.69, +10.47 (+0.49%).

The long term downcycle trendlines for NDX (NASDAQ 100) and SPX (S & P 500) were broken during the week ending 11-5-04, so (unexciting because of the very long term downcycle since March 2000) long term cycle buy signals occurred. Long term cycle lows occurred at 1301.93 on 8-13-04 for NDX and at 1060.72 for SPX. NDX and SPX both remain in very long term downcycles since March 2000 (see SPX chart dated 11-16-04).

"Eerie Nikkei-SPX Parallels" (At Zeal) shows the high degree of correlation between the S & P 500's and NASDAQ's post bubble behavior and that of the Japanese stock market that experienced a bubble in 1989 and remains at much lower levels 15 years later.

As one can see in the NDX (NASDAQ 100) charts below, a long term (1 to 3 years) cycle high occurred on 1-20-04 at 1559.47 and a long term cycle low occurred at 1301.93 on 8-13-04. The collapse of the wall of worry from late November 2003 until late January 2004 and the dramatic trend change in NASDAQ Institutional Money Flow 102 weeks ago to negative/outflows correctly portended a trend change. Given last week's negative NASDAQ Institutional Money Flow, weaknessis indicated this week, but cycle channels/trendlines are the primary market timing consideration. A minor intermediate term upcycle is in place (see chart below), because a 2% follow through buy signal occurred (uptrend from 1550 to 1600 area).

The very long term downcycle (3-10+ years in duration) which began in March 2000 probably has about 13 years to go. Paper assets (and hard assets in reverse fashion) tend to have very long term cycles that last about 35 years with about 17.5 years up (1982-2000) and 17.5 years down (2000-2018ish). There were very long term cycle highs (paper asset bubbles) in 1897, 1929, 1965ish, and in 2000 (about 35 years apart on average).

Risky NDX long term cycle buy signal because of the very long term downcycle since March 2000 and outflows nearly every week the past 102 weeks (see chart below). A major intermediate term cycle buy signal is in effect for NDX and SPX, but it appears to have broken down for NDX (see chart below). 5% follow through is required for a major sell signal. A minor intermediate term upcycle is in place for NDX and SPX because 2% follow through buy signals occurred.

NASDAQ Institutional Money Flow (block trading data, 10,000+ share blocks) "portends" (this isn't a good one week look ahead indicator except when there's a well established multiweek trend and the minor intermediate term cycle agrees with it) weakness this week ending 10-7 (a minor intermediate term upcycle is in place as of 9-30-05, which is the most important consideration) with 0.90% (189) more downtick blocks during the week ending 9-30. This primary fundamental indicator has reliably predicted the NASDAQ's direction, having turned positive in March 2003 after being negative for about three years following the March 2000 bubble peak/very long term cycle high. NASDAQ Institutional Money Flow turned negative again 102 weeks ago however and has generally been substantially negative, which resulted in a sharp decline until 8-13-04's long term cycle low.

Breadth, a primary fundamental indicator, was positive on Friday 9-30 with NASDAQ A/D at 3:2 in favor of advancing issues and NASDAQ Up/Down Volume was in favor of up volume by 12:5.

The NASDAQ wall of worry (VXN (NASDAQ 100 Volatility Index) and QQV (QQQ Volatility Index)) shrank substantially on Friday 9-30 with VXN revealing that an unusually large (> 6%) rise in complacency occurred for NDX (NASDAQ 100) and QQV revealed that a sharp rise in complacency occurred for QQQQ (NASDAQ 100 Tracking Stock). The NASDAQ is deemed Untimely on Monday despite the short term upcycle due to the fact that NDX is near the top of it's minor intermediate term upcycle channel at Friday 9-30's close and the fact that NDX and QQQQ experienced a substantial rise in complacency on 9-30. A short term upcycle is in place at Friday 9-30's close that usually would lead to strength/an uptrend, and a minor intermediate term upcycle is in place (see the top chart in the group above), a 2% follow through buy signal occurred last week. Better than expected economic data may result in strength.

Williams %R for NDX is in extremely overbought territory at -3.41 on 9-30-05 (below -80 (near the bottom) on my chart is the (look to) "buy" area (oversold) and above -20 is the look to "sell" area (overbought)). NDX is on a major intermediate term cycle buy signal (5% follow through after breaking it's intermediate term downcycle trendline, see the top chart above), but appears to have broken down. NDX is in a minor intermediate term upcycle, because a 2% follow through buy signal occurred (see the top chart above, uptrend from 1550 area). MACD is on a buy signal (above it's moving average). RSI and Stochastics are on buy signals. 

An unusually large rise in complacency occurred for the NASDAQ 100 on Friday with VXN (NASDAQ 100 Volatility Index) falling -1.06 (-7.38%) to 13.31 while NDX (NASDAQ 100) rose +11.73 (+0.74%) to 1601.66 which reveals that an unusually large (> 6%) rise in complacency occurred for NDX because VXN fell dramatically while NDX rose significantly (NDX wall of worry collapsed) which portends strength in NDX on Monday, and, a short term upcycle is in place at session's end on Friday 9-30. 

A sharp (2-2.99%) (+0.66% rise in QQQQ + -3.23% decline in QQV = -2.57% which is a 2.57% rise in complacency) 2.57% rise in complacency occurred for QQQQ (NASDAQ 100 Tracking Stock, +0.26 (+0.66%) to 39.46) on Friday since QQQQ rose significantly while QQV fell very sharply (QQQ Volatility Index, -0.42 (-3.23%) to 12.59) (QQQQ wall of worry shrank) which portends weakness in QQQQ on Monday, but, a short term upcycle is in place at session's end on Friday 9-30. 

On Friday VIX (which is now calculated using the implied volatility of SPX (S & P 500) options instead of OEX (S & P 100) options) fell -0.32 (-2.61%) to 11.92 versus a rise in SPX of +1.13 (+0.09%) to 1228.81 which was a sharp (2-2.99%) rise in complacency (wall of worry shrank) for the S & P 500/value stocks (SPX is about 75% value stocks) since VIX fell sharply while SPX rose slightly (S & P 500) which portends weakness in SPX on Monday, but, a short term upcycle is in place at session's end on Friday 9-30, and, a minor intermediate term upcycle is in place (2% follow through buy signal occurred). 

The S & P 500 (SPX) is deemed Untimely on Monday due to the sharp rise in complacency on Friday 9-30 and the fact that SPX is near the top of it's minor intermediate term upcycle channel at 9-30's close. A short term upcycle is in place at Friday 9-30's close which usually would lead to strength/an uptrend on Monday if it remains in place. Worse than expected economic data may result in some weakness. MACD is on a buy signal (above it's moving average). Stochastics and RSI are on buy signals. Williams %R for SPX is at -27.96 on 9-30-05 (below -80 (near the bottom) on my chart is the (look to) "buy" area (oversold) and above -20 is the look to "sell" area (overbought)). SPX is on a major intermediate term cycle buy signal (5% follow through after breaking it's intermediate term downcycle trendline). SPX is in a minor intermediate term upcycle (2% follow through buy signal  occurred).

The CBOE Total Put/Call Ratio at an elevated (at or above 0.75 but below 0.90) level of 0.83 at Friday's close points to weakness on Monday (the CBOE Index Put/Call Ratio at an extremely high 1.73 points to weakness/volatility) 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). Please keep in mind that cycle channels/trendlines are the most important consideration when timing any market.

Looking at NASDAQ 100 (NDX) Chicago Mercantile Exchange Commitments of Traders - Futures Only (Reportable Positions as of September 27, 2005), the Speculators (hedge funds and other speculators/traders) sold 302 long futures contracts and added 986 short futures contracts which portends strength this week (contrarian indicator), whereas, the Commercial Traders sold 736 long futures contracts and added 1822 short futures contracts which portends weakness this week (non contrarian indicator). NDX is in a minor intermediate term upcycle as of 9-30-05 (2% follow through buy signal occurred). Cycle trendlines/channels are the primary market timing consideration. NDX COT (do an edit then find "nasdaq" in Internet Explorer or Netscape to find it because it's near the bottom)

American Association of Individual Investors (AAII) % Bullish (AAII has been a useful non-contrarian sentiment indicator at very low levels below 40% bullish and very high levels above 60% bullish.) @ 31.9% bullish last week from 39.5% the prior week is a negative factor for the prospects of stocks during the week ending 10-7-05 because it's at a low range level of bullishness (below 40%). The change in or delta AAII % bullish is also a useful short term/weekly look ahead indicator in addition to the absolute value of AAII % bullish. The very sharp decline last week is a negative factor for the prospects of stocks during the week ending 10-7-05 because it's a very sharp rise in fear for this useful non-contrarian sentiment indicator contrarian. For now I'm using delta AAII % Bullish as a non contrarian indicator and I haven't determined exactly what significant changes are versus sharp or very sharp, etc. Since it appears to be strictly non contrarian (so far), I don't have to determine what an unusually large change is where the indicator becomes contrarian. The absolute value does become contrarian at extremely low (0-30% bullish) or extremely high (70-100% bullish) values, at least from an intermediate term cycle standpoint (a few weeks/months).

Gold & Silver Stocks - The Monthly Upcycle Has Rolled Over And Probably Peaked 
 

• 2% follow through monthly cycle sell signals (occurred the week before last, see latest charts) are usually good sell signals for monthly cycle traders, because risk skyrockets and reward if any plummets after an upcycle's parabolic trendline breaks down. HUI rose a grand total of +1.41% from 9-19's cycle high at 246.84 (occurred prior to the sell signal) until 9-30's likely monthly cycle high at 250.33, with about 15% of that gain coming from the largest market cap component of HUI, Newmont Mining (NEM). Looking at HUI's prior monthly upcycle that peaked in mid August (see latest chart), one can see that HUI made a modestly higher high after it's parabolic trendline broke down and then experienced a substantial decline until 8-30's monthly cycle low. From 9-30's likely monthly cycle highs there should be similar substantial declines in HUI, NEM, and the XAU until monthly cycle lows and a great buying opportunity occur in the next week or two.
  

• "Trade the Cycles" synopsis - Minor intermediate term/monthly cycle highs probably occurred on Friday 9-30 just after the open. The sharp declines (HUI fell from 250.33 just after the open to a session low 244.80 late in the session) and close near the session lows on 9-30, combined with reliable lead indicator NEM underperforming the XAU by a wide margin on Thursday 9-29 and Friday 9-30 (by -1.39%) and the monthly upcycle hitting a 2% sell signal (see latest charts) the week before last which indicates it's rolling over dramatically, means it's likely that monthly cycle highs occurred on 9-30. A substantial decline is likely in the next week or two until monthly cycle lows occur. The monthly cycle low targets are, based on the approximated more sharply rising major upcycle channel segments and the fact that they could end up being flatter than drawn (see latest charts), 220-230 for HUI, 43-45 for NEM, and 102-107 for the XAU. This implies downside of about 5-10% in the next week or two for HUI, NEM, and the XAU. Williams %R for HUI, NEM, and the XAU, currently at overbought levels (at or above -20, see latest charts), is likely to become oversold (below -80) when the monthly cycle lows occur, so watch that indicator as well as the target ranges of course. A more risk averse way to buy, as opposed to trying to pick the bottom, is to wait for short term cycle lows following monthly cycle lows, which would probably be the same as waiting for 2% follow through monthly cycle buy signals. The fact that NEM underperformed the XAU by a wide margin of -0.48% on Friday 9-30 points to likely weakness in HUI and the XAU (probably early) on Monday 10-3. Sustained sideways action often occurs for a few hours/days following cycle highs/lows (the flat part of a cycle's curve), so look for that. Elliot Wave Theory (see NEM chart dated 8-12-05 and the XAU chart dated 5-16-05) complements cycle channels/trendlines nicely (as do gaps), but is a secondary market timing tool, because cycle channels/trendlines are the primary market timing consideration. Gold hit a 2% follow through minor intermediate term cycle sell signal recently (see 1 year chart). The most important market timing consideration, therefore the most important thing to remember, is that HUI, NEM, and the XAU are in the sharply rising phase of the long term upcycle (began on May 10, 2004) since May 16, 2005's major intermediate term cycle lows (see  latest charts), and, this major upcycle should last until about May 2006 based on the fact that the long term cycles have been getting progessively longer (see first chart below and the HUI chart dated 5-12-05). HUI, NEM, and the XAU have been in a true Bull Market/very long term upcycle since October (NEM/XAU)/November (HUI) 2000 (see first chart below and the XAU chart dated 7-12-05). They've been in a long term upcycle since May 10, 2004 (see first chart below and the HUI chart dated August 5). They've been in a major intermediate term upcycle since May 16, 2005 (see latest charts). Gold began a very long term upcycle/true Bull Market in April 2001 and silver did so in late 2001.
  

• The fact that this major intermediate term upcycle since 5-16-05 is the sharply rising phase of the long term upcycle (began 5-10-04) means that surprises will tend to be to the upside, and, this major upcycle has increased in strength as can be seen in the latest charts, so last week's upside headfake isn't too surprising. However, stocks are entering a difficult time of the year seasonally, probably because mutual funds do their tax loss selling ahead of their fiscal year end, which I believe is on October 31. A few years ago Fidelity mutual funds alone accounted for about 12% of the daily trading volume on the NYSE. That probably isn't the case anymore, but the point is that mutual funds are a huge part of the daily trading activity as are hedge funds, which are private limited partnerships that cater to wealthy clients.
  

• Once a cycle's parabola/parabolic trendline breaks down it's time to get out (if you're trading that cycle timeframe), which is what happened recently, with HUI, NEM, the XAU, and gold hitting 2% follow through monthly cycle parabolic trendline sell signals. HUI, NEM, and the XAU rolled over dramatically following their 2% monthly cycle sell signals, with HUI gaining only +1.41% in the nine sessions from 9-19 until 9-30. Even if modestly or even significantly higher highs occur and a monthly upcycle is still in place until proven otherwise, risk is far too high to remain long following a 2% monthly cycle parabolic trendline sell signal, because of the dramatic decline in the rate of ascent (monthly upcycle dramatically rolls over and enters the flat topping part of the cycle). The important thing to remember is that the 2% follow through parabolic trendline sell signals (see charts) don't guarantee that the monthly cycle high has occurred (though it often has), but it does clearly indicate that risk is far too high to remain long because the cycle has entered the relatively flat topping area. A good example right now is gold's monthly cycle. Gold hit a 2% follow through parabolic trendline monthly cycle sell signal and failed to put in a higher high last week (see latest chart). The 2% follow through parabolic trendline sell signal indicates that risk is far too high for monthly cycle gold traders to be long.
  

• NEM experienced a major breakout recently, shattering it's downtrendline since 11-17-04 (see chart dated 9-16-05) and HUI, NEM, and the XAU all clearly broke out of their prior major upcycle channels since 5-16-05 (see latest charts) in a big way, so the new more sharply rising major upcycle channel/trendline segments for HUI, NEM, and the XAU have to be approximated based on where the monthly cycle highs occur (see latest charts), until enough cycle lows occur such that the new major upcycle channel/trendline segments are clearly defined. Normally of course when drawing an upcycle's channel the bottom line is drawn first, which is also the upcycle's rising bottoms uptrend line. The major intermediate term upcycle channels/trendlines for HUI, NEM, and the XAU have "gone parabolic" and increased in strength. This behavior is what one would expect in the sharply rise phase (began 5-16-05) of the long term upcycle (began 5-10-04). The surprises will tend to be to the upside until this major upcycle breaks down.
  

• The US Dollar only determines 0.10% (+1% times +1% = 0.10%) of gold's price action/variability now since the USD's correlation coefficient with gold is +1% as of 9-30-05. The USD determines only 3.24% of silver's price action/variability since the USD's correlation coefficient with silver is -18% on 9-30-05. The correlation coefficient, r, provides the direction of the correlation (+ or  -) but only the square root of the strength of the correlation. The coefficient of determination, r², provides the true strength of the correlation but without indicating its direction. Both of them must be used to fully understand the entire picture regarding correlation's effect. For the time being the US Dollar is only a very minor factor for precious metals.

• The gold COT (Commitments of Traders) data clearly points to weakness being the tone for most of this week, which jives with minor intermediate term cycle highs probably occurring on 9-30-05 for HUI, NEM, and the XAU. The gold Commercial Traders correctly traded aggressively long in three of the past five weeks, while also anticipating a substantial drop in gold in the near future by massively shorting in three of the past four weeks and aggressively selling last week. The gold Commercial Traders sold (data as of 9-27-05) an unusually large (> 10% decrease in long contracts) 12,264 long futures and options contracts (added 6522, 8291, 157, 3371 the prior four weeks, sold 243 the prior week, added 4653 the prior week) and covered 6973 short futures and options contracts (added 40,109, 18,612, 7588 the prior three weeks, covered 45,886, 281 the prior two weeks) which portends strength this week (non contrarian indicator), due to the unusually large degree of long liquidation that's a contrarian indication short term, and the large degree of short covering also points to strength because they tend to be non contrarian. However, the data is as of 9-27-05, and most of the strength probably occurred late last week. The most important consideration in timing any market is the cycle channels/trendlines (see chart above) and the data is somewhat stale (for short term cycle trading) by the time it's analyzed, but is highly useful nonetheless, especially for intermediate term cycle trading (a few weeks/months). Gold hit a minor intermediate term cycle low five weeks ago. The non contrarian gold Commercial Traders correctly engaged in massive short covering five weeks ago (45,886 short futures and options contracts covered, data as of 8-30-05) and made a respectable long trade of 3371 futures and options contracts, while the gold Speculators blundered as usual and sold a massive 45,185 long futures and options contracts near the minor intermediate term cycle low (data as of 8-30-05).
  

• The silver COT data clearly points to weakness being the tone for most of this week, which jives with likely minor intermediate term cycle highs occurring on 9-30-05 for HUI, NEM, and the XAU. The silver Commercial Traders sold an unusually large (> 10% decrease in long contracts) 2981 long futures and options contracts (sold 4811 the prior week, added 1064 the prior week, sold 1426 the prior week, added 5451 the prior week) and added 2327 short futures and options contracts (added 15,066, 801, 2112 the prior three weeks, covered 10,282, 4610, 4503, 2360 the prior four weeks) which portends strength this week (non contrarian indicator), due to the unusually large long liquidation that's a contrarian indication short term, but the large short trade points to some significant weakness because they tend to be non contrarian. The most important consideration in timing any market is the cycle channels/trendlines. The silver Commercial Traders made an unusually large long trade and engaged in an unusually large degree of short covering five weeks ago, which was a great sign (correct indication) on an intermediate term cycle basis (weeks/months).
  

• The remainder of the charts can be found at the bottom.
  

• Williams %R is in overbought territory (at or above -20) for HUI (-14.60)/NEM (-15.70)/XAU (-15.80) on 9-30-05 (see latest charts). Since it hit an extremely overbought level (at 0) last week, that correctly was a reliable indication to look to sell (minor intermediate term cycle traders only), which doesn't mean you mechanically sell, but that you probably will sell very soon or you may start selling (in 2 or 3 stages). The converse is of course true for oversold levels at or below -80, but the most important consideration by far is cycle channels/trendlines. Indicators and timing tools are used for finetuning buy/sell decisions after cycle trendline buy/sell signals suggest it's time to buy/sell (see charts above, most of you should probably be holding until a long term cycle sell signal occurs in 6 to 12 months).

• The XAU Put/Call Ratio, at 0.92548 (October expiration) on 9-30 versus at 1.01771 (October expiration) on 9-23, is a substantial rise in complacency that points to near term substantial XAU weakness following minor intermediate term/monthly cycle highs (that appear to have occurred on 9-30), because the XAU Put/Call Ratio fell much more in percentage terms than the XAU rose last week (about three times as much).
  

• An important bullish development is that gold's major intermediate term upcycle trendline since early February has turned up/increased in strength (see 1 year chart above). Gold hit a 2% follow through minor intermediate term cycle sell signal recently (see 1 year chart above).
  

• The US Dollar has hit a 2% follow through parabolic trendline minor intermediate term cycle buy signal (see chart above), and, it remains to be seen if the early July cycle high was a major intermediate term cycle high.                
  

• Many of the bullets that follow haven't changed from last week because this is a system ("Trade the Cycles") and because some are reading this for the first time. Some bullets are needed for reference purposes or to revisit important developments in the precious metals sector. "Trade the Cycles" is a relatively new system (began in 2003) that only reached a well developed state this year. Major buy/sell signal requirements were improved this year.
  

• When an upcycle's parabolic trendline, or "parabola" as I like to call it, breaks down, substantial declines almost always occur (see first chart and the USD chart). Once a cycle dramatically rolls over (rate of ascent declines dramatically), it's usually time to take profits if you're trading that cycle timeframe. Risk skyrockets following parabolic trendline sell signals as discussed in previous updates. Sideways action is a sign that a cycle high or low has occurred or is imminent. The best time to buy or sell is usually during sideways action after a cycle's "parabola" has broken down (or is broken to the upside). Almost all cycles have parabolic shaped trendlines, but, during the final spike move (or plunge/inverse spike for downcycles) some judgement is required as to what the parabolic or nearly vertical trendline is, which is the final segment of the "parabola."
  

• You must chart the cycles for the stocks you trade/invest in, because they can be radically different than those of HUI, NEM, and the XAU. For example, CDE and SIL just hit long term cycle lows in May 2005 versus HUI, NEM, and the XAU doing so on May 10, 2004.
  

• It can take a while for a major upcycle's trendline to establish itself. HUI is more volatile and therefore tends to have more uncertainty than NEM and the XAU. This is one of the good reasons to look at three major upcycles (HUI, NEM, and the XAU) rather than one. Also, NEM, being a reliable lead indicator and the largest market cap component of HUI and the XAU, has the most important cycles. The long term upcycle's (since May 10, 2004) rising bottoms trendline didn't exist until May 16, 2005's major intermediate term cycle lows (HUI, NEM, and the XAU. See first chart above and the HUI chart dated August 5). It took slightly over a year to establish itself and ended up being very flat, probably because the long term cycle lows occurred well above the very long term upcycle trendline (see top chart above). The very important point I'm trying to make is to understand that markets do reliably experience cycles (look at the charts above) even though it can take a while for a cycle's trendline to clearly establish itself, which can lead to surprises with shorter cycles.

• The major intermediate term upcycle trendlines since May 16, 2005 for HUI, NEM, and the XAU (see charts above, gold since early February, see it's 1 year chart) should become more parabolic/sharply rising over time (clearly did recently), as cycles almost always do, and given that this should be the sharply rising phase of the long term upcycle (began on 5-10-04), dramatic gains should occur. HUI, NEM, and the XAU should approximately double from their major intermediate term cycle lows on 5-16-05 to their long term cycle highs as discussed in previous updates. This major intermediate term upcycle should last about twice as long as last year's (6 months from 5-10-04 until 11-17-04) and see about twice the gains (100% or so versus HUI's 51.50% from 5-10-04 until 11-17-04). Note in HUI's 5 year chart dated 6-29-05 (top chart above) that the long term cycles are getting longer. The previous long term upcycle's parabolic phase lasted about 9 months, so it's reasonable to assume that this one will last about one year (until May 2006).
  

• I update my gold/silver stock "Current Assessment" near the top of my home page (middle of the second bullet) regularly, so near critical times especially, you may want to check it out. Also, you can see how I use the indicators in concert with cycles just above the "Current Assessment." Fascinating!
  

• Gold put in a major bottom near $410 in early February, so it led the stocks pricewise but didn't flash a major buy signal until June (see 1 year chart below), a few weeks after HUI, NEM, and the XAU did (see HUI chart dated 6-3-05). So, "major cycle effect wise" gold still lagged gold stocks even though pricewise it bottomed earlier, which is the first time I've seen gold lead gold stocks pricewise. Gold stocks still led gold in that they flashed a major intermediate term cycle buy signal a few weeks before gold did.
  

• If you're trading cycles you should sell whenever a parabolic trendline breaks down for whatever cycle timeframes you're trading (trade parabolas basically, see the first chart and other charts above, that have an ever increasing rate of ascent for upcycles or an ever increasing rate of descent for downcycles, use 2% follow through for minor buy/sell signals and 5% plus the NEM Lead Indicator for major buy/sell signals as previously discussed).
  

• Most of you should not be trading minor intermediate term cycles, but should be holding for the next approximately 6 to 9 months (the HUI 5 year charts dated 6-29-05 and 5-12-05 above shows that the long term cycles are getting longer), during which dramatic gains should occur for HUI, NEM, and the XAU because this is, according to the nature of cycles, the parabolic/sharply rising phase of the long term upcycle that began on May 10, 2004. HUI, NEM, and the XAU were very flat during the early phase of their long term upcycles, which isn't too surprising since cycles tend to begin relatively flat and become increasingly parabolic/sharply rising over time.
  

• The XAU 2 year chart dated 5-16-05 above shows the Elliot Wavesque 1, 2, 3, 4, 5 cycle structure of the major intermediate term upcycle from 5-10-04 until 11-17-04 as well as the A, B, C correction from 11-17-04 until 5-16-05. The fact that there are predictable cyclical patterns for gold/silver stocks and most if not all markets is well established. The major caveat being that one must know what the longer cycles are doing in order to time shorter cycle timeframes. The predictability of the long term cycles uptrend obviously comes from the very long term upcycle since late 2000 and knowing that very long term upcycles (and downcycles) tend to last about 17.2 years. Gold's very long term downcycle lasted 21 years, from 1980 until April 2001.
  

• Gold hit a major intermediate term cycle buy signal (see 1 year chart above) in June because it followed through by more than 5% after breaking it's intermediate term downcycle trendline in place since early December 2004. This major buy signal lagged gold stocks' major buy signal by a few weeks, but this is the first time that I've seen gold hit a major bottom (early February 2005) well before gold stocks did (May 16, 2005) in this very long term upcycle since late 2000 for gold/silver stocks and since April 2001 for gold (late 2001 for silver), which is probably a major positive. Gold usually lags gold stocks at major cycle highs/lows. Gold peaked in early December 2004 versus HUI, NEM, and the XAU doing so on 11-17-04 and gold peaked in early April 2004 versus HUI and NEM doing so on 12-2-03 and the XAU doing so on 1-6-04 (long term cycle highs).
  

• Most of you will do much better holding for the next 6 to 9 months as opposed to actively trading, at which time long term cycle highs should occur for HUI, NEM, and the XAU that may be about double the level of the major lows on 5-16-05. HUI may rise on the order of 100% to about 330 in the next 6-9 months assuming a long term upcycle is in effect. NEM may rise to the 70-75 area in the next 6-9 months in that case. The XAU may rise to about 150 in the next 6-9 months in that case.

• Major intermediate term cycle lows occurred for HUI, NEM, and the XAU on 5-16-05 at 165.71 for HUI, at 34.90 for NEM, and at 78.23 for the XAU, that were above their long term cycle lows that occurred at 163.81 for HUI, at 34.70 for NEM, and at 76.79 for the XAU on 5-10-04.
  

• Looking at the top chart above, the 5 year HUI chart showing the 6 long term cycle 5% follow through buy/sell signals in the gold/silver stock very long term upcycle, one sees that all 6 long term cycle buy/sell signals correctly indicated that the long term cycle high or low was in (the NEM Lead Indicator is also needed when a potential long term cycle low occurs well above the very long term upcycle trendline as discussed previously). The probability that coincidence/pure luck led to that outcome is only 1.56% which is 50% raised to the sixth power. So, assuming that a very long term upcycle remains in effect (they last about 17.2 years on average), there's a very high probability that long term cycle buy/sell signals will work in the future. I can provide countless examples for shorter cycle timeframes where the parabolic trendline buy/sell signals worked every time. The caveat is that one must know what the longer cycles are doing (where their trendlines are) or you might use the wrong trendline and get an erroneous buy/sell signal.
  

• A new potential indicator (that I haven't seen a use for yet) is Chaikin Money Flow (CMF) for reliable lead indicator Newmont Mining (NEM). Money flow is a primary fundamental indicator. NEM CMF turning negative tends to correspond closely with the beginning of sharp downcycles. Please see the NEM chart above dated 9-30-05. NEM's CMF closed at +0.34 on 9-30-05. Given that a CMF level of +0.25 for NEM reflects strongly positive CMF, then +0.34 is strongly positive CMF.
  

• The correlation coefficient is the square root of the strength of the correlation. The correlation coefficient is +1% on 9-30 (-10% on 9-23) for the past 180 trading days for gold, according to Moore Research Center, Inc. For silver the negative correlation coefficient with the USD is -18% on 9-30 (-14% on 9-23) for the past 180 trading days. Silver's correlation is usually much more positive than gold's because it's more of an industrial metal than gold is, hence it usually has a more positive correlation with US economic strength and a strong US Dollar. 

• The Coefficient of Determination is the square of the correlation coefficient (the true strength of the correlation is determined by squaring the correlation coefficient) and explains how much the USD is determining gold's and silver's price action/variability or the S & P 500 is determining gold's or silver's price action/variability. The US Dollar only determines 0.10% (+1% times +1% = 0.10%) of gold's price action/variability now since the USD's correlation coefficient with gold is +1% as of 9-30-05. The USD determines only 3.24% of silver's price action/variability since the USD's correlation coefficient with silver is -18% on 9-30-05. The correlation coefficient, r, provides the direction of the correlation (+ or  -) but only the square root of the strength of the correlation. The coefficient of determination, r², provides the true strength of the correlation but without indicating its direction. Both of them must be used to fully understand the entire picture regarding correlation's effect.

• The positive correlation coefficient between gold and the S & P 500 is +24% for the past 180 trading days (positive correlation coefficient with silver is +11%), according to Moore Research Center, Inc. This means that the S & P 500 determines 5.76% of gold's price action/variability (Coefficient of Determination = 24% squared = 5.76%). The S & P 500's sharp decline from early March until late April is a major reason why gold and gold stocks were weak during that stretch (positive correlation coefficient between gold and the S & P 500 for the past 180 trading days was at 60% 20 weeks ago).
  

• The Gold:XAU Ratio (currently at 4.16) may become a third major buy/sell signal signal criterion, along with 5% follow through and a clearly bullish/bearish NEM Lead Indicator. Per Myles Zyblock, Chief North American Institutional Strategist at RBC Capital Markets, when it's above 5.0 (12% of the time the past 22 years) the average annual one-year holding period return for stocks in the XAU has been +38.4% and in only one instance was there a loss. When it's below 3.0 (5% of the time the past 22 years) the average annual one-year holding period return for stocks in the XAU has been -24.3% with no instances of an up year. As a stand alone indicator, at least for trading purposes, the Gold:XAU Ratio probably isn't highly useful because obviously both gold and the XAU can fall 10% or more in tandem after reaching 5.0 or rise 10%+ after reaching 3.0. However, I need to research/backtest this. 5.25 or even 5.50 is probably a better criterion.
  

• The report I received via e mail from Marketocracy for the week ending 9-30-05: "JFR - Joe F. Rocks's Mutual Fund, Net Asset Value (NAV): $10.96 on 9-30 vs $10.77 on 9-23, Compliant: Yes, This past week Return: +1.78%." HUI (AMEX Gold Bugs Index) was up +3.47% last week for comparison, so JFR outperformed HUI in 16 of the past 37 weeks. HUI is a better yardstick than NEM or the XAU, since it usually outperforms NEM and the XAU (in upcycles). HUI was up about 70% each year in 2001, 2002, and 2003, so outperforming HUI is no easy task. My imaginary mutual fund JFR is up 9.60% since it's inception on 1-5-05.
  

• XAU Implied Volatility rose +1.47% to 28.665 on Friday 9-30 from 28.250 on 9-29 versus a -1.35% decline in the XAU on 9-30, which is a slight (up to 0.24%) 0.12% rise in fear (+1.47% + -1.35% = +0.12%. The XAU wall of worry grew by 0.12%, therefore fear rose by 0.12%) that portends strength/an uptrend on Monday 10-3 (fear is usually contrarian, therefore normally portends strength, until it reachs an unusually large level (> 6% increase) where it becomes non contrarian). That strength/an uptrend could follow a gap down at the open and early weakness. XAU Implied Volatility tends to indicate a trend/tone rather than necessarily a simplistic up or down session. The XAU Put/Call Ratio is another very important indicator that may disagree with XAU Implied Volatility. These indicators must be used in concert with cycle channels/trendlines (very long term, long term, intermediate term, and short term).

• The XAU Put/Call Ratio is at 0.92548 for the October expiration on 9-30 versus at 1.01771 for the October expiration on 9-23 versus at 0.84470 for the September expiration on 9-9 versus at 0.85337 for the September expiration on 9-2 versus at 1.02491 for the September expiration on 8-26 versus at 0.73494 for the August expiration on 8-12 versus at 0.81863 for the July expiration on 7-1 versus at 0.91027 for the July expiration on 6-24 versus at 0.76954 for the June expiration on 6-17 versus at 0.87064 for the June expiration on 6-10 versus at 0.80155 for the June expiration on 6-3 versus at 0.55895 (May expiration) on 5-19 versus at 1.13583 (May expiration) on 4-22. The XAU Put/Call Ratio was at 0.65704 for the final January expiration value as of 1-21. The XAU Put/Call Ratio was at 0.79348 for the final December expiration as of 12-17-04. The XAU Put/Call Ratio was at 1.03065 for the final November expiration value as of 11-19-04. The XAU Put/Call Ratio was at 0.85989 for the final October expiration value as of 10-15. If it rises 6% or less it portends strength following likely early weakness (indicated by XAU Implied Volatility). If it falls 6% or less it portends weakness. At unusually large greater than 6% moves the XAU Put/Call Ratio becomes non contrarian, so a greater than 6% rise portends weakness (unusually large rise in fear) and a greater than 6% decline portends strength (unusually large rise in complacency).
  

• A major indicator (NEM Lead Indicator) portending strength this week (but all indicators and cycle channels/trendlines (most important consideration) must be considered collectively, not in isolation. Think "system.") is the fact that NEM outperformed the XAU last week by +0.16% (-0.19%, +1.09%, +0.51%, -1.32%, -0.40%, +0.98%, +0.52%, -0.08%, +0.26%, +0.81%, -0.91%, -1.00%, -2.86%, -0.38%, +0.09%, -0.39%, -0.72%, -0.69%, -1.87%, +0.45%, -2.15%, -1.17%, +0.10%, +1.83%, +0.08%, +0.44%, and +0.97% the prior 27 weeks): -1.83% vs -1.37% on 9-30, +1.07% vs +1.98% on 9-29, +2.61% vs +2.17% on 9-28, -0.75% vs -1.62% on 9-27, +2.30% vs +2.08% on 9-26.        

• The reliable non contrarian (in terms of their trading activity) gold Commercial Traders are short gold. They are clearly positioned for gold weakness (largely because of hedging) with only 76,539 long futures and options contracts versus 285,284 short futures and options contracts (data as of 9-27-05). The Commercial Traders (typically) correctly begin to take substantial profits (and sell short) as a cycle rolls over/weakens (following cycle parabolic trendline sell signals) while the Speculators tend to overshoot when making the various trading decisions (buying, selling, shorting, short covering).

• The notoriously contrarian (in terms of their trading activity) gold Speculators are correctly positioned for gold strength with 222,945 long futures and options contracts versus only 45,499 short futures and options contracts (data as of 9-27-05).

• The gold Commercial Traders sold an unusually large (> 10% decrease in long contracts) 12,264 long futures and options contracts (added 6522, 8291, 157, 3371 the prior four weeks, sold 243 the prior week, added 4653 the prior week) and covered a large 6973 short futures and options contracts (added 40,109, 18,612,7588 the prior three weeks, covered 45,886, 281 the prior two weeks) which portends strength this week (non contrarian indicator), due to the unusually large degree of long liquidation that's a contrarian indication short term, and the large degree of short covering also points to strength because they tend to be non contrarian. The most important consideration in timing any market is the cycle channels/trendlines (see chart above) and keep in mind that the data is as of 9-27-05, so the data is somewhat stale (for short term cycle trading) by the time it's analyzed, but is highly useful nonetheless, especially for intermediate term cycle trading (a few weeks/months).

• The gold Speculators (hedge funds and other speculators/traders) sold 1322 long futures and options contracts (added 46,468, 15,622, 690 the prior three weeks, sold 45,185, 2562 the prior two weeks) and covered an unusually large (> 10% decrease in short contracts) 8053 short futures and options contracts (added 10,063, 4127 the prior two weeks, covered 1847, 744, 4233 the prior three weeks) which portends strength this week (contrarian indicator), due to the unusually large short covering that's a non contrarian indication short term. The most important consideration in timing any market is the cycle channels/trendlines (see chart above). 

• The reliable non contrarian (in terms of their trading activity) silver Commercial Traders are short silver. They are clearly positioned for silver weakness (largely because of hedging) with only 28,349 long futures and options contracts versus 90,484 short futures and options contracts as of 9-27-05. 

• The notoriously contrarian (in terms of their trading activity) silver Speculators are correctly positioned for silver strength with 51,084 long futures and options contracts versus only 13,430 short futures and options contracts as of 9-27-05.

• The silver Commercial Traders sold an unusually large (> 10% decrease in long contracts) 2981 long futures and options contracts (sold 4811 the prior week, added 1064 the prior week, sold 1426 the prior week, added 5451 the prior week) and added 2327 short futures and options contracts (added 15,066, 801, 2112 the prior three weeks, covered 10,282, 4610, 4503, 2360 the prior four weeks) which portends strength this week (non contrarian indicator), due to the unusually large long liquidation that's a contrarian indication short term, but the large short trade points to some significant weakness because they tend to be non contrarian. The most important consideration in timing any market is the cycle channels/trendlines.

• The silver Speculators (hedge funds and other speculators/traders) added 1961 long futures and options contracts (added 7743, 2608 the prior two weeks, sold 4411 the prior week, added 2743, 143 the prior two weeks) and covered an unusually large (> 10% decrease in short contracts) 1895 short futures and options contracts (covered 11,410 the prior week, added 2153 the prior week, covered 7654 the prior week, added 16,580 the prior week) which portends strength this week (contrarian indicator), due to the unusually large short covering that's a non contrarian indication short term, but the long trade points to some weakness because they tend to be contrarian. The most important consideration in timing any market is the cycle channels/trendlines.

• The reliable non contrarian (in terms of their trading activity) USD Commercial Traders are now positioned for US Dollar weakness (massively short) with 657 long futures and options contracts versus 11,162 short futures and options contracts as of 9-27-05. Last week they sold 35 long futures and options contracts (sold 9451, 1346 the prior two weeks, added 4683 the prior week, sold 3161 the prior week) and added an unusually large/huge (> 10% increase in short contracts) 5097 short futures and options contracts (covered 2733 the prior week, added 4543 the prior week, covered 6164, 1351 the prior two weeks, added 655 the prior week, covered 8222 the prior week) which portends strength this week (non contrarian indicator), due to the unusually large short trade that's a contrarian indication short term, but the huge size could make it revert to non contrarian and portend weakness. The most important consideration in timing any market is the cycle channels/trendlines (see chart above).
  

• The notoriously contrarian (in terms of their trading activity) USD Speculators are now positioned for US Dollar strength (massively long) with 12,703 long futures and options contracts versus 2978 short futures and options contracts as of 9-27-05. Last week they added an unusually large/huge (> 10% increase in long contracts) 5100 long futures and options contracts (added 3236 the prior week, sold 1447, 473 the prior two weeks, added 577, 632 the prior two weeks, sold 8064 the prior week) and added 686 short futures and options contracts (covered 1862, 7046 the prior two weeks, added 8873 the prior week, covered 928 the prior week, added 300, 287, 232, 644, 21, 376 the prior six weeks) which portends USD weakness this week (contrarian indicator), because the huge long trade causes the unusually large case to revert back to contrarian. The most important consideration in timing any market is the cycle channels/trendlines (see chart above).
  

• FREE COT (Commitments of Traders) Charts (see link) reveal that the Commercial Traders generally know what they're doing and the Speculators don't. The Commercial Traders tend to be near net short extremes near major tops and near net long extremes near major bottoms, thus making them non contrarian indicators most of the time. The Speculators tend to do just the opposite and are contrarian indicators most of the time.

• Detailed analysis regarding the important long term upcycle buy signal and other important "big picture" information as well as information about my system/indicators can be found at this link.
  

• Cycle channels and trendlines are the primary market timing consideration (other tools/indicators are great for finetuning), except the NEM Lead Indicator is (really only) needed for major buy signals when the potential major cycle low occurs well above the next longer cycle's trendline, such as occurred on May 10, 2004 when long term cycle lows occurred for HUI, NEM, and the XAU well above their very long term upcycle trendlines in place since late 2000 (see top chart above). Since May 16, 2005's major intermediate term cycle low occurred right at the very long term upcycle trendline for the XAU (see 5 year chart dated 7-12-05), the NEM lead Indicator wasn't really required (in addition to the 5% follow through requirement), but given how long and brutal the (major intermediate term downcycle from 11-17-04 until 5-16-05) correction was we needed all the confidence we could get. In other words, if HUI, NEM, and the XAU bounce dramatically at their Bull Market/very long term upcycle trendlines or long term upcycle trendlines and 5% or more follow through occurs after breaking their major downcycle trendlines, that strongly suggests that the next longer cycle remains in effect and that a major buy signal has occurred.
  

• The 5% follow through requirement combined with the NEM Lead Indicator, the two new major buy/sell signal requirements, would have weeded out all six important cycle lows that occurred prior to 5-16-05 in the major correction (from 11-17-04 until 5-16-05), and, correctly indicated that 5-16-05 was a major intermediate term cycle low. So, the two new major buy/sell signal requirements worked seven consecutive times and there's only a 0.78% chance that result was due to pure luck (50% raised to the seventh power).

• My system/work is NOT about me making educated guesses and calling bottoms, even though I (mistakenly) did that in the major correction from 11-17-04 until 5-16-05 for HUI, NEM, and the XAU, partly for reasons such as HUI having, until recently (early April), a well developed trendline since 5-10-04's long term cycle low that appeared to be it's long term upcycle trendline. The reason why I'm developing a backtested system ("Trade the Cycles") is because it's impossible to consistently time the market (by educated guessing) using an unbacktested approach comprised of technical analysis and indicators. From now on, where major bottoms are concerned, I'll only indicate that a likely major bottom has occurred after the two major buy signal criteria are satisfied (The 5% follow through requirement in concert with a clearly bullish NEM Lead Indicator for a few weeks), which would have weeded out all 6 important cycle lows (see next bullet) that occurred during the major intermediate term downcycle from being major intermediate term cycle low candidates, and there's only a 1.56% probability that was the result of pure luck (50% raised to the sixth power). Assuming that May 16, 2005 really was a major intermediate term cycle low then the two major buy signal requirements will have been effective 7 consecutive times and there's only a 0.78% chance that was the result of pure luck (50% raised to the seventh power).

• The 5% follow through major buy signal requirement (after breaking through the intermediate term downcycle trendline connecting short term cycle highs) weeds out the December 8, 2004, January 6, 2005, March 29, 2005, April 15, 2005, and the April 28 cycle lows from being a major intermediate term cycle low, but not the February 8 (HUI/XAU)/9 (NEM) 2005 cycle low. However, the NEM Lead Indicator clearly indicated (weeds out) that the February 2005 cycle low probably wasn't a major low. It appears that the 5% follow through requirement in concert with a clearly bullish NEM Lead Indicator for a few weeks will work well for timing/major buy signals. Also, an Elliot Wave type A, B, C major correction pattern is likely to occur, with point C, the major cycle low, occurring relatively close to the Bull Market/very long term upcycle trendline, which helps.
  

• Buying and holding major intermediate term upcycles (that last about 3 to 12 months) makes a lot of sense, but not long term or very long term upcycles, because they're too flat (rising bottoms) and one loses too much during major corrections (However, with good stock selection, one can do very well with buy and hold during this gold/silver stock Bull Market/very long term upcycle that began in late 2000). This is a change from my belief that one should hold during long term upcycles. One should wait for a major intermediate term cycle buy signal before buying. So, it makes sense to be long during major intermediate term cycle buy signals and in cash and/or short during major intermediate term cycle sell signals.
  

• Cycle channels/trendlines are the most important consideration when timing any market. A very long term upcycle has been in place since late 2000 and a long term upcycle has been in place since May 10, 2004 for HUI, NEM, and the XAU (gold began a very long term upcycle in April 2001). Very long term upcycles (and downcycles) tend to last about 17.5 years on average. Gold's previous very long term downcycle lasted from 1980 until April 2001.

• As I've said before, if you find that the detailed technical work is too much to digest, the cycle channels/trendlines in the charts are by far the most important consideration, so one can still use my system even if the indicators/technical work are difficult to grasp (right now, sometimes with perseverance one might grasp it).

• I've created a Joe F. Rocks imaginary mutual fund at Marketocracy that will trade gold/silver stocks and maybe also precious metals via Exchange Traded Funds (ETF) like GLD (new gold ETF) using my "Trade the Cycles" system. The Fund Manager name should say Joe Ferrazzano not  "joefrocks." I bought "en masse" on 1-5-05 and was more than 90% invested on that date. This will be a way of establishing an independently calculated track record. I'll track it's performance weekly in these updates, but the link above updates the fund share price/NAV the day after each session I believe.  

• The Joe F. Rocks fund at Marketocracy will provide a great independently tracked way of assessing "Trade the Cycles" as well as my trading ability and you can compare me to other market timers. I think I have a great shot at being very near the top of Marketocracy's rankings in the near future, partly because of how great the gold/silver stock market is, but also because of my "Trade the Cycles" system. Given how volatile gold/silver stocks are it would be easy to have a substandard rate of return relative to HUI and the XAU if one wasn't good at timing gold/silver stocks. I'll be doing mostly intermediate term cycle trading (cycles that last about 4-6 weeks from cycle low to the next cycle low) and some short term cycle trading. Once the long term cycle high occurs probably in about 6 to 12 months I'll be 35% in cash and will find low volatility stocks to park most of the rest of the fund. I have to be at least 65% invested, which ties my hands some, but I should still do very well. Margin and short selling aren't allowed by Marketocracy because they're following typical mutual fund guidelines. I could end up running a real mutual fund for them if I rank very high.
  

Joe F. Rocks!

====================== End of Update ==============================

The following analysis/commentary didn't change from 4-25's update -

There's some debate about wether the gold stock Bull has ended and deflation will occur or if inflation will increase substantially. Take a look at commodities, housing, healthcare costs, education costs, etc. and what do you see? It's not deflation. The US Dollar (USD) is merely having a countertrend rally and gold a countertrend decline that has a ways to go. The USD is in a very long term downcycle that began in mid 2001 which is INFLATIONARY. Case closed. Basically the US has a crappy economy and high inflation a la the 1970s which is great for precious metals just as it was in the 1970s.

The post bubble economic cycle has deflationary effects (such as in the stock market and the economy) that are being fought with massive stimulus and an extremely easy monetary policy at least as far as rock bottom short term rates are concerned.

The cycle based system I use has stood a great test and the long term downcycle remains in effect despite trendline "buy signals" suggesting otherwise (if one didn't use/understand cycles). The long term upcycle trendlines for HUI and the XAU that began in October 2002 for HUI and in July 2002 for the XAU broke down in January of this year and those indices are now heading (I strongly believe, similar to what occurred after the prior two long term upcycles broke down as shown in the chart below) for their very long term upcycle/Bull Market trendlines in the next few months.  The XAU should bottom in the 70-75 area as the chart below reveals.

As one can see in the chart below from 2-6-04 the XAU's long term downcycle remained in effect two long term cycles ago in 2001 despite the long term downcycle becoming less steep as has recently occurred in this long term downcycle. In the previous long term downcycle in 2002 the downcycle's trend was very steep/parabolic and a long term cycle low occurred less than two months after the long term cycle high.

The XAU Put/Call Ratio collapsed (fell by > 6%) on both Thursday 3-25 and Friday 3-26, correctly portending strength each day because it was an unusually large rise in complacency that portends strength. However, the collapse of the XAU Put/Call Ratio to 0.58064 on 4-8 for the April expiration from levels well above 1.00 a few months ago correctly portended weakness because the gold stock market became very complacent.

I originally thought that HUI (AMEX Gold Bugs Index) was the most important index because it isn't affected nearly as much as the XAU (Philadelphia Gold/Silver Index) is by mining firms that hedge (they've underperformed in this Bull market). Then I began to emphasize the XAU more because it had a higher correlation to reliable lead indicator Newmont Mining (NEM). About 25-30% of the XAU is determined by NEM because it's a market cap weighted index and NEM, with a market cap of nearly $20 Billion, is much larger than even the second largest firm in the XAU, Barrick (ABX), at nearly a $12 Billion market cap. Durban Roodeport Deep (DROOY) has a market cap below $1 Billion as of 3-19.

The problem with relying heavily on NEM and the XAU as I was doing is that a stock or a market cap weighted index with relatively few components like the XAU is