Joe F. Rocks!
Growth Stock Investor & Market Strategist

Joe F. Rocks! Trade the Cycles Updated 1-15-06

Growth Stock (NASDAQ) Timeliness - Tuesday - Untimely (Weakness/a downtrend, that could follow a gap up at the open and early strength, during "much" of Tuesday's session is a "hit!.")
                                                           - Short Term Cycle (2-7 Days) - Untimely (NDX/QQQ are in overbought short term downcycles as of 1-13-06.)
                                                           - Minor Intermediate Term Cycle (3-6 Weeks) - Timely (NDX minor intermediate term upcycle is in effect.)

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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The long term downcycle trendlines for NDX (NASDAQ 100) and SPX (S & P 500) were broken during the week ending 11-5-04, and (unexciting because of the very long term downcycle since March 2000) long term cycle buy signals occurred shortly thereafter. 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 16 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 117 weeks ago to negative/outflows correctly portended a trend change. Given last week's positive NASDAQ Institutional Money Flow, some strength is indicated this week, but cycle channels/trendlines are the primary market timing consideration. A minor intermediate term upcycle is in place, because a 2% follow through buy signal occurred.

The very long term downcycle (8-20 years in duration) which began in March 2000 probably has about 12 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).

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) some strength this week ending 1-20 (a minor intermediate term upcycle is in place at 1-13-06's close, which is the most important consideration, because a 2% follow through buy signal occurred) with 0.96% (223) more uptick blocks during the week ending 1-13. 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 117 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 1-13 with NASDAQ A/D at more than 16:13 in favor of advancing issues and NASDAQ Up/Down Volume was in favor of up volume by more than 9:8.

The NASDAQ wall of worry (VXN (NASDAQ 100 Volatility Index) and QQV (QQQ Volatility Index)) shrank substantially on Friday 1-13 with VXN revealing that a sharp (2-2.99%) rise in complacency occurred for NDX (NASDAQ 100) and QQV revealed that a very sharp rise in complacency occurred for QQQQ (NASDAQ 100 Tracking Stock). The NASDAQ is deemed Untimely on Tuesday due to the short term downcycle, NDX's overbought condition, and, the substantial rise in complacency that occurred on 1-13. The short term downcycle in place at Friday 1-13's close usually would lead to weakness/a downtrend, but, a minor intermediate term upcycle is in place (see the top chart in the group above), because a 2% follow through buy signal occurred. Better than expected economic data may result in strength.

Williams %R for NDX is in overbought territory at -11.48 on 1-13-06 (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). NDX hit a minor intermediate term cycle 2% follow through buy signal recently. MACD is on a buy signal (above it's moving average). RSI and Stochastics are on buy signals in or near overbought territory. 

A sharp rise in conplacency occurred for the NASDAQ 100 on Friday with VXN (NASDAQ 100 Volatility Index) falling -0.32 (-1.97%) to 15.92 while NDX (NASDAQ 100) fell -0.57 (-0.03%) to 1746.78 which reveals that a sharp (2-2.99%) rise in complacency occurred for NDX because VXN fell significantly versus NDX falling slightly (NDX wall of worry shrank) which portends weakness in NDX on Tuesday, a short term downcycle is in place at session's end on Friday 1-13, and NDX is overbought. A minor intermediate term upcycle is in effect, because a 2% follow through buy signal occurred. 

A very sharp (3-6%) (-0.05% decline in QQQQ + -3.20% decline in QQV = -3.25% which is a +3.25% rise in complacency) +3.25% rise in complacency occurred for QQQQ (NASDAQ 100 Tracking Stock, -0.02 (-0.05%) to 42.98) on Friday since QQQQ fell slightly while QQV fell very sharply (QQQ Volatility Index, -0.46 (-3.20%) to 13.92) (QQQQ wall of worry shrank substantially) which portends weakness in QQQQ on Tuesday, a short term downcycle is in place at session's end on Friday 1-13, and QQQQ is overbought. A minor intermediate term upcycle is in effect, a 2% follow through buy signal occurred.

On Friday VIX (which is now calculated using the implied volatility of SPX (S & P 500) options instead of OEX (S & P 100) options) rose +0.03 (0.27%) to 11.23 versus a rise in SPX of +1.55 (+0.12%) to 1285.45 which was a modest (0.25%-0.49%) rise in fear (wall of worry grew) for the S & P 500/value stocks (SPX is about 75% value stocks) since VIX rose modestly while SPX rose slightly (S & P 500) which portends strength in SPX on Tuesday, but, a short term downcycle is in place at session's end on Friday 1-13 and SPX is overbought. 

The S & P 500 (SPX) is deemed Timely but Risky on Tuesday due to the short term downcycle and overbought condition. A short term downcycle might still be in place at Friday 1-13's close which usually would lead to weakness/a downtrend on Tuesday 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 weak buy signals (occurred before they became oversold) in or near overbought territory. Williams %R for SPX is in overbought territory at -14.83 on 1-13-06 (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 0.78 at Friday's close points to modest weakness/volatility on Tuesday (the CBOE Index Put/Call Ratio at an extremely high 1.64 points to weakness/volatility) because it's a reliable non-contrarian indicator of the next session's early action except at very high (at or above 1.05) or very 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 January 10, 2006), the Speculators (hedge funds and other speculators/traders) added an unusually large (> 10% increase in long position) 1884 long futures contracts and covered an unusually large (> 10% decrease in short position) 2130 short futures contracts which portends strength this week (contrarian indicator) due to the unusually large net long increase, which is a short term non contrarian indication, whereas, the Commercial Traders added an unusually large (> 10% increase in long position) 4162 long futures contracts and added a large 2426 short futures contracts which portends weakness this week (non contrarian indicator), because the unusually large long trade is a short term contrarian indication and the large short trade also points to weakness. NDX is in a minor intermediate term upcycle, since a 2% follow through buy signal occurred. Keep in mind that the data is three days stale when released. 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.) @ 59.0% bullish last week from 29.4% the prior week is a neutral factor for the prospects of stocks during the week ending 1-20-06 because it's at a mid range level of bullishness (between 40-60%). 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 huge rise last week is probably a negative factor for the prospects of stocks during the week ending 1-20-06 because it's a huge rise in complacency for this useful non-contrarian sentiment indicator contrarian that probably makes it contrarian in this rare instance. 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 Major Intermediate Term Upcycle's Elliot Wave 3 Lives
 

• The minor intermediate term upcycle since 10-20-05 (HUI/XAU) appears to be the major upcycle's (since 5-16-05, see latest HUI/NEM 1 year charts) Elliot Wave 3, so, a substantial multi-week correction is likely soon, which will be the major upcycle's Elliot Wave 4 down. The NEM Lead Indicator was a very bullish +2.21% versus the XAU last week. The XAU Put/Call Ratio and XAU Implied Volatility both rose despite XAU strength last week, which typically portends more strength this week because the XAU wall of worry grew, revealing that fear crept into the gold/silver stock market last week. The gold Commercial Traders traded net long, but their unusually large long trade and significant short selling last week (data as of 1-10-06) points to weakness. Also, Williams %R is in extremely overbought territory (well above -20, at 0!) for HUI (-0.00)/NEM (-0.00)/XAU (-0.00) on 1-13-06 (see latest charts), which means some weakness is likely on Tuesday.      
  

• "Trade the Cycles" Near Term Synopsis - Federal Reserve Bank Credit (released weekly, see link), which apparently drives index fund trading that profoundly affects gold/silver stocks and many other sectors' near term cycles (see second chart), plunged by -$16.920 Billion in the week ending 1-11-06, after revealing that the Fed had spiked the punch the prior three weeks, with a large +$6.393 Billion credit increase the week ending 1-4-06, a +9.225 Billion credit increase three weeks ago, and a +$5.554 Billion credit increase four weeks ago. A weekly plunge in Fed Credit usually results in a very sharp decline shortly thereafter, which means that the major upcycle's (since 5-16-05) Elliot Wave 4 down should soon begin. Also, Repo (Repurchase Agreement) data released on a daily basis (see link) provides a good idea of what Fed Credit is doing on a daily basis. A replay of Thursday 1-5's massive Fed Credit (Repos totaled $16.75 Billion) occurred on Thursday 1-12 (Repos totaled $17 Billion), which led to a spike move by many indexes (SPX, HUI, XAU, etc.) on Friday 1-13, similar to what occurred on Friday 1-6. The unusual strength since late December was apparently induced by an unusually large Federal Reserve Bank Credit spike recently (three consecutive large weekly increases), which fueled index fund buying, and, the long term upcycle since 5-10-04 has become very strong, so the dramatic credit spike was quickly felt and had a major impact on many stock market indexes. When NEM begins to underperform the XAU by a very wide margin (over -1.00% in a session or two) that will be a sign that substantial weakness is probably about to set in. NEM outperformed the XAU by +0.12% on Friday 1-13. The Elliot Wave 3 minor int term cycle high is an important though not major/final cycle high, because the major upcycle's Elliot Wave 5 cycle high probably lies ahead of us and should occur in the 330-350+ range for HUI, based on extrapolating the prior long term cycle highs since late 2000 when the Bull Market/very long term upcycle began. In order to reach it's major upcycle trendline (at 240ish) HUI would have to fall about 70 points or -22.58% from 1-13's close at 310ish. Even if HUI's major upcycle trendline turns up a 15-20% correction appears likely soon. Once the minor int term cycle highs are in, HUI, NEM, and the XAU will probably do a down, up, down, Elliot Wave A, B, C minor int term downcycle, which is probably the major upcycle's (since 5-16-05) Elliot Wave 4 down. HUI, NEM, and the XAU could, based on their major upcycle trendlines (see latest 1 year charts), fall to 240-250 (HUI), 46-48 (NEM), and 112-117 (XAU). The minor int term downcycle should take about two to four weeks. NEM has downside gaps to fill at 57.96 from 1-13, at 56.66 from 1-6, at 53.40 from 1-3, at 51.59 from 12-28, at 50.45 from 12-22, and at 48.75 from 12-7, and, the XAU has downside gaps at 137.59 from 1-13, at 135.39 from 1-6, at 128.03 from 1-3, at 124.36 from 12-28, and at 122.49 from 12-22. Often cycle highs or lows will occur shortly after gaps get filled, so one needs to track gaps closely. If gaps don't get filled that can be a bearish or bullish sign, as occurred recently when NEM twice closely approached (daily cycle lows at 48.88 and 48.89) but didn't fill it's downside gap at 48.75, then the recent explosive rally occurred. Gold hit a 2% follow through minor intermediate term cycle sell signal five weeks ago (see 1 year chart), and, the minor intermediate term upcycle's rate of ascent has declined dramatically (peaks are rolling over), but not as much as it normally would because the long term upcycle is very strong now.
  

• "Trade the Cycles" Big Picture Synopsis - My 2006 prediction: Gold/silver stocks should romp until about May 2006 as discussed previously (see bottom half of this paragraph) because the long term upcycle that began on May 10, 2004 is near it's point of maximum strength. We've obviously seen some of that strength the past two and a half months. After gold/silver stocks put in long term cycle highs gold and silver should peak a few months later, since they tend to lag gold/silver stocks at major cycle highs and lows, as occurred in 2004 when gold hit a long term cycle high in April 2004 versus December 2, 2003 for HUI/NEM and January 6, 2004 for the XAU. A major multi-week downcycle by the S & P 500 (SPX) will probably coincide closely with HUI, NEM, and the XAU hitting long term cycle lows in mid to late 2006 because index funds trading their gold/silver stock components have a profound influence on gold/silver stocks. SPX's 6 weekish correction in April/May 2004 coincided very closely with that of HUI, NEM, and the XAU's (please see the link) when they put in long term cycle lows on May 10, 2004 (that's my 2006 prediction). 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 progressively 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. 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.

• As discussed at the "Trade the Cycles" Blog (see link) we've seen how important SPX (S & P 500) is because it drives index fund trading that has a profound affect on many indexes, including HUI/XAU. Now, in the form of Federal Reseve Bank Credit, we can see how much money is fueling index fund trading. The daily and weekly deltas (changes) are what matter. The latest very large -$16.920 Billion weekly decline in Fed Credit (as of 1-11-06) is likely to result in a very sharp decline soon, but Thursday 1-12's very large $17 Billion in Repos obviously are a major offset. Federal Reserve Bank Credit appears to be a very reliable short term cycle indicator that must be used, as all the indicators must  be used, with cycle channels/trendlines, which are the primary market timing consideration.
  

• The XAU's wall of worry held up well last week (actually rose despite XAU strength) which typically portends more strength as does the fact that the NEM Lead Indicator was a very bullish +2.21% last week, but cycles are the primary consideration. The XAU Put/Call Ratio is at 1.10113 for the January expiration on 1-13 versus at 1.03654 for the January expiration on 1-6. XAU Implied Volatility rose to 33.580 on 1-13 from 32.575 on 1-6. The huge drop in Federal Reserve Bank Credit portends a very sharp drop soon, offset some by Thursday's huge $17 Billion in Repos (Repurchase Agreements). Federal Reserve Bank Credit fell -$16.920 Billion in the week ending 1-11-06, with the major factor being Repurchase Agreements, which fell -$18.357 Billion in the week ending 1-11-06. See http://www.federalreserve.gov/releases/h41/Current/
  

• The latest COT data (as of 1-10-06) is bearish short term since the gold Commercial Traders traded an unusually large long position and the gold Speculators traded an unusually large short position, both of which portend weakness for at least part of this week. The data is three days old when released. The gold Commercial Traders added an unusually large (> 10% increase in long contracts) 13,289 long futures and options contracts (added the prior week, sold 1381, 8157 the prior two weeks, added 11,405 the prior week, sold 14,042 the prior week) and added 4626 short futures and options contracts (added 3299 the prior week, covered 2036 the prior week, added 4202, 2623 the prior two weeks) which portends weakness this week (non contrarian indicator), because the unusually large long trade is a short term contrarian indication and the significant short selling also points to some weakness. The gold Speculators (hedge funds and other speculators/traders) added 2975 (added 1521 the prior week, sold 3988, 5112, 19,247 the prior three weeks, added 9102 the prior week) long futures and options contracts and added an unusually large (> 10% increase in short contracts) 9445 (added 5824 the prior week, covered 1535, 7432, 8720 the prior three weeks) short futures and options contracts which portends weakness this week (contrarian indicator), because the unusually large short selling is a short term non contrarian indication. The most important consideration in timing any market is the cycle channels/trendlines (see charts below).

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

• Notice in the 5 day chart that shows SPX, HUI, NEM, XAU relative performance (second chart) that NEM outperforming (SPX index funds buying NEM) the XAU leads to strength and underperforming (SPX index funds selling NEM) leads to weakness. Notice that NEM tends to outperform when SPX trends up and underperform when SPX trends down. This is because SPX leads most indexes and drives index fund trading because it's the 800 lb gorilla of indexes. There are many common components between SPX and other indexes, so SPX's movements drive those of other indexes with common components and even those without many (or any) common components because the S & P 500 (SPX) basically IS the stock market. 

• Based on backtesting so far (details below), whenever a large weekly increase in Federal Reserve Bank Credit occurs that leads to substantial short term strength in gold/silver stocks, and, large weekly decreases lead to substantial short term weakness, but cycles are the primary market timing consideration. A large credit increase near a major cycle high will lead to much more strength faster than near a major cycle low for example. So, part of the reason why there has been so much strength recently is because the additional buying occurred near the top of the minor int term cycle instead of near the bottom and the long term upcycle since 5-10-04 has become very strong. Federal Reserve Bank Credit should provide a lot of confidence when making the typically difficult short term trading decisions (especially after a minor int term cycle sell signal when risk is much higher), in concert with cycle channels/trendslines and of course all the other indicators. It will also be a great help near important/major turning points. Please keep in mind that this is new research.

  Federal Reserve Bank Credit expanded by a large +$6.393 Billion the week ending 1-4-06, by +9.225 Billion three weeks ago, and by +$5.554 Billion four weeks ago, which probably foretold the recent spike move by most indexes. If you look at the releases in late September or October 2005 during the gold/silver stock correction Federal Reserve Bank Credit was contracting or only slightly expanding. Federal Reserve Bank Credit appears to be a good lead indicator for large moves, for indicating that large moves are unlikely, and for identifying likely turning points. I'm going to track this weekly.
  

  Federal Reserve Bank Credit was +$9.549 Billion in the week ending 11-16-05. The XAU spiked dramatically higher on 11-16 (16-Nov-05 XAU cycle low = 107.86 and cycle high = 114.29) and rallied four more sessions before a short term downcycle occurred. Federal Reserve Bank Credit contracted substantially in mid to late August 2005 when gold/silver stocks corrected (minor int term downcycle) and increased substantially during September's minor int term upcycle. The largest changes are shown here. Federal Reserve Bank Credit was -$7.447 Billion in the week ending 8-10-05 which foretold a correction (minor int term downcycle) in the second half of August. Federal Reserve Bank Credit was +$6.375 Billion in the week ending 8-31-05 which foretold a rally (minor int term upcycle) in September that began very late in August. It appears I've discovered a new important indicator that's probably very important for short term cycle trading. See http://www.federalreserve.gov/releases/h41/Current/ for the latest release. See http://www.federalreserve.gov/releases/h41/ for all releases.                        
  

• Repurchase agreements (RPs or Repos) are a huge factor for Federal Reserve Bank Credit. I'm still in research mode but it looks like there's huge borrowing going on to buy index futures/options and baskets of indexes' components (index fund trading I've been discussing which is a huge factor for gold/silver stocks and many other sectors) courtesy of the Fed's Open Market Operations ( http://app.ny.frb.org/markets/omo/dmm/temp.cfm ) which leads to occasional dramatic spikes in the stock market when there's a large increase in borrowing from the prior day/week or occasional dramatic plunges when there's a large decrease in borrowing from the prior day/week (Federal Reserve Bank Credit spikes or plunges http://www.federalreserve.gov/releases/h41/Current/ ). The US repo market reached USD 5 trillion (!) at the end of 2004 AND is growing at a two-digit pace, which means it's growing at over $500 Million/year!, so index fund trading is becoming even more of a factor.

  The US Federal Reserve and the European Repo Council (a body of the International Securities Market Association) both try to estimate the size of their respective repo markets. At the end of 2004, the US repo market reached USD 5 trillion and the European one passed EUR 5 trillion in outstandings. Both are growing at a two-digit pace. http://en.wikipedia.org/wiki/Repurchase_agreement

• SPX drives SPX and other index funds which have a profound affect on the short term/weekly and monthly movements of many sectors, including gold/silver stocks. The largest traders of NEM and other gold/silver stocks found in the various indexes are index fund traders, AND, they tend to trade at THE SAME TIME or nearly so, which is huge. The cycles are vastly different for gold/silver stocks and SPX since gold/silver stocks are in a very long term upcycle since Oct/Nov 2000 and SPX is in a very long term downcycle since March 2000.

• Program Trading Accounts For About 45% Of Trading Volume On The NYSE. Note that it involves the S & P 500.

  "Program trading is a generic term used to describe a type of trading in securities, usually consisting of stocks traded on the New York Stock Exchange and their corresponding options traded on the Chicago Board Options Exchange and/or the American Stock Exchange; and, the Standard & Poor's 500 Index commodity contract traded on the Chicago Mercantile Exchange. The trading of these items is based purely on their price in relation to each other on a predetermined basis; and not, on any fundamental reason such as an individual company's earnings, dividends, or growth prospects; or, on any overall economic reasons such as interest rate movements, currency fluctuations, or governmental or political actions. There are different types of program trading that we will describe later along with how you can benefit from the different types. According to the New York Stock Exchange, program trading accounts for about 45% of the trading volume on that exchange every day. "  http://www.programtrading.com/faq.htm

• It's becoming obvious that the reason why NEM is such a good lead indicator for HUI/XAU (see link) is because it's a component of SPX (S & P 500), and, since SPX is the 800 lb gorilla of indexes, it drives index fund trading, hence SPX is the ultimate lead indicator for HUI/XAU and many other indexes. Luckily however SPX's cycles don't match gold/silver stocks' cycles. SPX is in a very long term downcycle/primary Bear Market since March 2000 while HUI, NEM, and the XAU are in a very long term upcycle/primary Bull Market since October (NEM/XAU)/November (HUI) 2000. However, SPX obviously has a profound affect on gold/silver stocks' minor intermediate term and short term cycles due to index fund trading. Rapid modest % moves in SPX cause rapid significant moves in NEM and other gold/silver stocks in the many indexes affected by SPX.
  

• Williams %R is in extremely overbought territory (well above -20, at 0!) for HUI (-0.00)/NEM (-0.00)/XAU (-0.00) on 1-13-06 (see latest charts). It typically hits an extremely overbought level (near 0) near minor intermediate term cycle highs, which is a reliable indication to look to sell, 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).

• 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 USD's major intermediate term upcycle appears to have finally peaked, but 5% follow through is required for a major sell signal, and, will confirm that a major intermediate term cycle high occurred in mid November 2005 (see chart above). This jives with the COT data, which reveals that the non contrarian USD Commercial Traders are massively short and the contrarian USD Speculators are massively long. The recent rally may have been the final last gasp spike move of the USD's major upcycle this year.              
  

• The US Dollar determines 31.36% (+56% times +56% = 31.36%) of gold's price action/variability now since the USD's correlation coefficient with gold is +56% for the past 180 trading days as of 1-13-06. The USD determines 36.00% of silver's price action/variability since the USD's correlation coefficient with silver is 60% for the past 180 trading days on 1-13-06. Notice that the correlation is now positive, so gold (and silver) will get a boost if the US Dollar rises, which is the opposite of the usual negative correlation where US Dollar strength leads to gold weakness and US Dollar weakness leads to gold strength. 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.

• 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 in 2005. Major buy/sell signal requirements were improved (really were developed for the first time) in 2005.
  

• The major lesson learned from the fact that the downcycle from 9-30's (all dates 2005) monthly cycle high to 10-5's cycle low was a short term/weekly one (Elliot Wave A of an A, B, C downcycle) not a monthly one is that a downcycle's trendline usually begins relatively flat. The downcycle from 9-30 to 10-5 DID begin relatively flat from a short term cycle perspective, with flatness on 9-30 that wasn't evident on the daily chart. On a daily chart a monthly downcycle trendline will almost always begin relatively flat, with one or two short term cycle highs not far below the monthly cycle highs. That was the best clue that 10-5's cycle lows probably weren't monthly ones. HUI, NEM, and the XAU's downcycle trendlines fell off a cliff from 9-30 until 10-5's cycle low on the daily charts, which meant that 10-5's cycle lows were probably short term rather than monthly cycle lows. Therefore, it's very important to keep in mind the nature of cycles and the fact that they tend to begin relatively flat. Also, the downcycle from 9-30 to 10-5 was a relatively brief and shallow downcycle by monthly downcycle standards, which was another indication that it probably wasn't the monthly cycle bottoming.

• Once a cycle's parabola/parabolic trendline sell signal occurs it's time to get out (if you're trading that cycle timeframe), which is what happened recently, when HUI, NEM, the XAU, and gold hitting 2% follow through monthly cycle parabolic trendline sell signals in the prior monthly upcycle. 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 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. 
  

• 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) typically weekly, so near critical times especially, you may want to check it out. Better yet, my "Trade the Cycles" Blog is updated usually two or three times a day.
  

• 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.
  

• The correlation coefficient is the square root of the strength of the correlation. The correlation coefficient is +56% on 1-13 (+60% on 1-6) for the past 180 trading days for gold, according to Moore Research Center, Inc. For silver the correlation coefficient with the USD is +60% on 1-13 (+60% on 1-6) 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 determines 31.36% (+56% times +56% = 31.36%) of gold's price action/variability now since the USD's correlation coefficient with gold is +56% for the past 180 trading days as of 1-13-06. The USD determines 36.00% of silver's price action/variability since the USD's correlation coefficient with silver is 60% for the past 180 trading days on 1-13-06. 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 report I received via e mail from Marketocracy for the week ending 1-13-06: "JFR - Joe F. Rocks's Mutual Fund, Net Asset Value (NAV): $13.68 on 1-13 vs $13.33 on 1-6, Compliant: Yes, This past week return: +2.61%." HUI (AMEX Gold Bugs Index) was up +1.72% last week for comparison, so JFR outperformed HUI in 25 of the past 52 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 36.80% since it's inception on 1-5-05. JFR is in the top 2% of Marketocracy's mutual funds for the 6 months ending 11-18-05, outperforming 98.7% of them in that timeframe.
  

• XAU Implied Volatility rose +2.61% to 33.580 on Friday 1-13 from 32.725 on 1-12 versus a +3.18% rise in the XAU on 1-13, which is a very sharp (3-6%) +5.79% rise in fear (+2.61% + +3.18% = +5.79%. The XAU wall of worry grew by +5.79%, therefore fear rose by +5.79%) that portends strength/an uptrend during part of Tuesday 1-17's session (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 1.10113 for the January expiration on 1-13 versus at 1.03654 for the January expiration on 1-6 versus at 0.90369 for the expired December expiration on 12-16 versus at 0.78388 for the November expiration on 11-4 versus at 0.80360 for the October expiration on 10-14 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 +2.21% (-1.05%, +0.41%, +0.69%, +2.15%, +1.06%, +1.02%, -1.52%, +1.16%, -1.04%, -1.26%, -1.01%, -0.69%, -0.12%, +0.80%, +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 42 weeks): +3.30% vs +3.18% on 1-13, -0.91% vs -1.06% on 1-12, +0.41% vs -0.05% on 1-11, -0.44% vs -0.19% on 1-10, +1.40% vs -0.33% on 1-9.        

• 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 103,426 long futures and options contracts versus 288,608 short futures and options contracts (data as of 1-10-06). 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 186,070 long futures and options contracts versus only 38,091 short futures and options contracts (data as of 1-10-06).

• The gold Commercial Traders added an unusually large (> 10% increase in long contracts) 13,289 (added the prior week, sold 1381, 8157 the prior two weeks, added 11,405 the prior week, sold 14,042 the prior week) long futures and options contracts and added 4626 (added 3299 the prior week, covered 2036 the prior week, added 4202, 2623 the prior two weeks) short futures and options contracts which portends weakness this week (non contrarian indicator), because the unusually large long trade is a short term contrarian indication and the significant short selling also points to some weakness. 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 1-10-06, 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) added 2975 (added 1521 the prior week, sold 3988, 5112, 19,247 the prior three weeks, added 9102 the prior week, sold 2697 the prior week) long futures and options contracts and added an unusually large (> 10% increase in short contracts) 9445 (added 5824 the prior week, covered 1535, 7432, 8720 the prior three weeks) short futures and options contracts which portends weakness this week (contrarian indicator), because the unusually large short selling is a short term non contrarian indication. 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 34,331 long futures and options contracts versus 114,657 short futures and options contracts as of 1-10-06. 

• The notoriously contrarian (in terms of their trading activity) silver Speculators are correctly positioned for silver strength with 60,664 long futures and options contracts versus only 4746 short futures and options contracts as of 1-10-06.

• The silver Commercial Traders sold 1188 (added 621 the prior week, sold 665 the prior week, added 2534, 2178 the prior two weeks) long futures and options contracts and covered 1239 (covered 151 the prior week, added 1454, 1903 the prior two weeks, covered 3277, 1760 the prior two weeks) short futures and options contracts which portends modest strength this week (non contrarian indicator), but the significant long liquidation points to some weakness. The most important consideration in timing any market is the cycle channels/trendlines.

• The silver Speculators (hedge funds and other speculators/traders) sold 1735 (sold 2219 the prior week, added 1565 the prior week, sold 6111 the prior week) long futures and options contracts and covered an unusually large (> 10% decrease in short contracts) 1376 (covered 1031 the prior week, added 55 the prior week, covered 1880, 2274, 274, 783 the prior four weeks) short futures and options contracts which portends strength this week (contrarian indicator), because the unusually large short covering is a short term non contrarian indication. 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 positioned for US Dollar weakness (net short) with 10,077 long futures and options contracts versus 14,215 short futures and options contracts as of 1-10-06. Last week they added an unusually large (> 10% increase in long contracts) 1148 (added 1525 the prior week, sold 806, 964 the prior two weeks, added 6371 the prior week) long futures and options contracts and covered an unusually large (> 10% decrease in short contracts) 5422 (added 1189 the prior week, covered 386, 8250 the prior two weeks, added 3468, 333 the prior two weeks) short futures and options contracts which portends weakness this week (non contrarian indicator), because the unusually large long trade is a short term contrarian indication, as is the unusually large short covering. 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 positioned for US Dollar strength (net long) with 10,179 long futures and options contracts versus 5217 short futures and options contracts as of 1-10-06. Last week they sold an unusually large (> 10% decrease in long contracts) 4033 (added 959 the prior week, sold 309, 7347, 1970 the prior three weeks, added 2143 the prior week) long futures and options contracts and added an unusually large (> 10% increase in short contracts) 1657 (added 1459 the prior week, covered 690, 653 the prior two weeks, added 369 the prior week) short futures and options contracts which portends USD weakness this week (contrarian indicator), because the unusually large short selling is a non contrarian indication short term as is the unusually large long liquidation. 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).