Joe F. Rocks!
Growth Stock Investor & Market Strategist

Joe F. Rocks! Trade the Cycles Updated 12-26-05

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 (2-3 Days) - Untimely (NDX/QQQ are in short term downcycles as of 12-23-05.)
                                                           - Minor Intermediate Term Cycle (3-6 Weeks) - Untimely (NDX minor intermediate term upcycle peaked on 12-6-05.)

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, 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 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 114 weeks ago to negative/outflows correctly portended a trend change. Given last week's negative NASDAQ Institutional Money Flow, some weakness is indicated this week, but cycle channels/trendlines are the primary market timing consideration. A minor intermediate term downcycle is in place since 12-6-05, because a 2% follow through sell signal occurred. 

The very long term downcycle (8-20 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).

The intermediate term upcycle from early May 2005 until early August 2005 broke down, but a major intermediate term upcycle is probably still be in effect because the intermediate term upcycle from early May 2005 until early August 2005 was probably a long minor intermediate term upcycle. The very long term downcycle (8-20+ years in duration) that began in March 2000 forces one to be conservative because risk is so much higher in a primary Bear Market. Since the early October intermediate term cycle lows held, I'm switching back to saying that a major intermediate term upcycle is in effect since early May 2005. In the first chart one can see that a major intermediate term cycle buy signal occurred in late May 2005/early June 2005 for NDX and probably remains in effect, but one must be conservative given the primary Bear Market since March 2000.

A Risky NDX long term cycle buy signal occurred because of the very long term downcycle since March 2000 and outflows nearly every week the past 114 weeks (see chart below). A major intermediate term cycle buy signal is in effect for NDX and SPX. A minor intermediate term cycle high occurred for NDX on 12-6-05 and may have occurred for SPX on 12-14, but a 2% follow through sell signal hasn't occurred yet for SPX (see chart below for NDX).

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 weakness this week ending 12-30 (a minor intermediate term downcycle is in place since 12-6-05, which is the most important consideration, because a 2% follow through sell occurred) with 1.21% (202) more downtick blocks during the week ending 12-23. 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 114 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 12-23 with NASDAQ A/D at more than 15:14 in favor of advancing issues and NASDAQ Up/Down Volume was in favor of up volume by nearly 2:1.

The NASDAQ wall of worry (VXN (NASDAQ 100 Volatility Index) and QQV (QQQ Volatility Index)) was a mixed picture on Friday 12-23 with VXN revealing that a significant (0.50-1.99%) rise in complacency occurred for NDX (NASDAQ 100) but QQV revealed that a modest rise in fear occurred for QQQQ (NASDAQ 100 Tracking Stock). The NASDAQ is deemed Untimely on Tuesday due to the short term downcycle and the fact that NDX's minor intermediate term cycle turned down on 12-6. The short term downcycle in place at Friday 12-23's close usually would lead to weakness/a downtrend, and, a minor intermediate term downcycle is in place (see the top chart in the group above), a 2% follow through sell signal occurred. Better than expected economic data may result in strength.

Williams %R for NDX is at -53.35 on 12-23-05 (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). NDX hit a minor intermediate term cycle high on Tuesday 12-6, a 2% follow through sell occurred. MACD is on a sell signal (below it's moving average). RSI and Stochastics are on sell signals. 

A significant rise in complacency occurred for the NASDAQ 100 on Friday with VXN (NASDAQ 100 Volatility Index) falling -0.07 (-0.51%) to 13.60 while NDX (NASDAQ 100) fell -0.43 (-0.03%) to 1682.92 which reveals that a significant (0.50-1.99%) rise in complacency occurred for NDX because VXN fell significantly despite NDX falling slightly (NDX wall of worry shrank) which portends weakness in NDX on Tuesday, and, a short term downcycle is in place at session's end on Friday 12-23. A minor intermediate term downcycle began on 12-6, a 2% follow through sell signal occurred. 

A modest (0.25-0.49%) (+0.01% rise in QQQQ + +0.48% rise in QQV = +0.49% which is a +0.49% rise in fear) +0.49% rise in fear occurred for QQQQ (NASDAQ 100 Tracking Stock, +0.006 (+0.01%) to 41.403) on Friday since QQQQ rose slightly while QQV rose modestly (QQQ Volatility Index, +0.06 (+0.48%) to 12.44) (QQQQ wall of worry grew) which portends strength in QQQQ on Tuesday, but, a short term downcycle is in place at session's end on Friday 12-23. A minor intermediate term downcycle began on 12-6, a 2% follow through sell 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) fell -0.02 (-0.19%) to 10.27 versus a rise in SPX of +0.54 (+0.04%) to 1268.66 which was a slight (up to 0.24%) rise in complacency (wall of worry shrank) for the S & P 500/value stocks (SPX is about 75% value stocks) since VIX fell slightly while SPX rose slightly (S & P 500) which portends weakness in SPX on Tuesday, and, a short term downcycle is in place at session's end on Friday 12-23. 

The S & P 500 (SPX) is deemed Untimely on Tuesday due to the fact that a slight rise in complacency occurred on 12-23 and a short term and possibly also a minor intermediate term downcycle are in effect. A short term downcycle is in place at Friday 12-23's close which usually would lead to weakness/a downtrend on Tuesday if it remains in place. Better than expected economic data may result in some strength. MACD is on a sell signal (below it's moving average). Stochastics and RSI are on sell signals. Williams %R for SPX is at -28.69 on 12-23-05 (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 was recently in a minor intermediate term upcycle (2% follow through buy signal  occurred), but a minor intermediate term cycle high probably occurred on 12-14-05. A 2% follow through sell signal is required to confirm that's the case.

The CBOE Total Put/Call Ratio at a moderate (at or above 0.50 but below 0.75) level of 0.69 at Friday's close points to neither strength or weakness/volatility on Tuesday (the CBOE Index Put/Call Ratio at an extremely high 1.39 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 December 20, 2005), the Speculators (hedge funds and other speculators/traders) sold 1385 long futures contracts and covered 1503 short futures contracts which portends weakness this week (contrarian indicator), whereas, the Commercial Traders sold an unusually large (> 10% decrease in long position) 25,244 long futures contracts and covered an unusually large (> 10% increase in short position) 16,201 short futures contracts which portends weakness/volatility this week (non contrarian indicator), and, since NDX is in a minor intermediate term downcycle since 12-6-05, weakness is likely to be the tone this week (2% follow through sell 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.) @ 41.0% bullish last week from 46.2% the prior week is a neutral factor for the prospects of stocks during the week ending 12-30-05 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 sharp decline last week is a negative factor for the prospects of stocks during the week ending 12-30-05 because it's a 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 - HUI, NEM, And The XAU Test Their December 12 Cycle Highs
 

•  HUI and NEM put in slightly higher cycle highs on Friday 12-23 than those that occurred on 12-12, and, since last week's short term upcycle appears to have turned down (see NEM 5 day chart), HUI and NEM probably put in monthly cycle double tops, while the XAU put in a modestly lower cycle high on 12-23. The bullish NEM Lead Indicator at +2.15% versus the XAU and the bullish gold COT (Commitments of Traders) data the week before last correctly pointed to a substantial rebound last week.                    
  

• "Trade the Cycles" Near Term Synopsis - Assuming the monthly cycle highs are in, HUI, NEM, and the XAU will probably do a down, up, down, Elliot Wave A, B, C monthly downcycle, which means that an Elliot Wave A short term downcycle probably began on 12-23. The latest COT (Commitments Of Traders) data is bearish, with the gold Commercial Traders  (data as of 12-20-05) engaging in aggressive long liquidation (sold a large 8157 long futures/options contracts) and doing significant short selling (shorted 4202 futures/options contracts). In the monthly downcycle HUI, NEM, and the XAU could, based on their major upcycle trendlines in the latest 1 year charts, fall in the next few weeks to 240-250 (HUI), 45.50-47.50 (NEM), and 110-115 (XAU), which implies maximum downside from the monthly cycle highs of -12.1% for HUI and -13.4% for NEM and the XAU. The bottom of the monthly/minor intermediate term cycle low target ranges is above where the major intermediate term upcycle trendline currently is in order to allow for the passage of time. The monthly downcycle for HUI and NEM should take approximately two to three weeks, and, assuming the XAU's monthly cycle high occurred on 12-12, it's monthly downcycle will probably be four to five weeks (from 12-12). NEM has downside gaps to fill at 50.45 from 12-22 and at 48.75 from 12-7, and, the XAU has a downside gap at 122.49 from 12-22. Often cycle highs or lows will occur shortly after gaps have been filled, so one needs to track gaps closely. A likely scenario early this week is that NEM and the XAU will fill those downside gaps, then HUI, NEM, and the XAU may put in short term cycle lows shortly thereafter. Since SPX (S & P 500) appears to have put in a monthly cycle high in mid December (a 2% follow through sell signal hasn't occurred yet) SPX index funds selling NEM and other index funds selling their gold/silver stocks should occur much of this week and add to gold/silver stock weakness. Gold hit a 2% follow through minor intermediate term cycle sell signal the week before last (see 1 year chart). The 2% follow through sell signal indicates that a minor intermediate term cycle high occurred near $541 on 12-12-05.
  

• "Trade the Cycles" Big Picture Synopsis - 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 cha