Joe F. Rocks!
Growth Stock Investor & Market Strategist

Joe F. Rocks! Trade the Cycles Updated 1-30-05

Growth Stock (NASDAQ) Timeliness - Monday - Timely but Risky (Weakness/a downtrend, that could follow a gap up at the open, during "much" of Monday's session is a "hit!.")
                                                           - Very Short Term (2-3 Days) - Timely but Risky (NDX/QQQ are on short term cycle sell signals but VXN/QQV rose dramatically recently.)
                                                           - Short Term (1-3 Weeks) - Timely but Risky (NDX experienced a parabolic trendline intermediate term cycle sell signal on 12-9-04 when it broke below it's parabolic rising troughs trendline (see latest chart), is vulnerable due to negative money flow, but VXN (NDX implied volatility index/wall of worry) rose dramatically recently.)

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.

For those of you who entered this page directly and haven't discovered the vast resources on the home page yet please check out Joe F. Rocks! Growth Stock Investor & Market Strategist, don't forget to bookmark it and please tell your colleagues and friends.

Analysis/Commentary -

The NASDAQ Composite (COMPX) opened modestly higher on Friday 1-28, but, COMPX trended down most of the session, spent most of the session in negative territory, and closed significantly lower at 2035.83, -11.32 (-0.55%).

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) 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).

The chart below is the latest "wall of worry" chart. Keep in mind the relativistic nature of the wall of worry with VXN (NDX (NASDAQ 100) wall of worry) and VIX (SPX (S & P 500) wall of worry) rising faster in % terms than NDX and SPX fall portending strength and vice versa. The collapse of the wall of worry for both NDX and SPX from late March until late April 2004 correctly portended weakness. The dramatic rise of the wall of worry for both NDX and SPX from late April until mid May 2004 correctly portended strength in those indices. The collapse of the wall of worry for both NDX and SPX until mid May 2004 correctly portended a collapse in those indices, with long term cycle lows occurring on 8-13-04. Weakness occurred for both NDX and SPX since their intermediate term upcycles broke down recently (parabolic and straight trendline intermediate term cycle sell signals occurred for NDX and SPX), since their respective walls of worry (VXN (NDX (NASDAQ 100) wall of worry) and VIX (SPX (S & P 500) wall of worry)) collapsed recently. The dramatic rise in their respective walls of worry should soon lead to strength.

"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 67 weeks ago to negative/outflows correctly portended a trend change. Given the recent negative NASDAQ Institutional Money Flow, some weakness is likely this week, but the NASDAQ is likely to bounce soon due to the recent dramatic rise in fear/VXN/QQV. A parabolic trendline intermediate term cycle sell signal occurred for NDX on 12-9-04 and an intermediate term cycle high occurred shortly thereafter. A parabolic trendline intermediate term cycle buy signal occurred for NDX three weeks ago, but given the very long term downcycle since March 2000, parabolic trendline intermediate term cycle buy signals tend to be less effective, so one has to wait for a straight trendline buy signal before buying.

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).

Confirmation of an NDX long term cycle high occurred when the straight long term cycle trendline broke down (see chart dated 2-27-04) which confirmed the parabolic trendline sell signal that occurred shortly after the long term cycle high.

NASDAQ Institutional Money Flow (block trading data) "portends" (this isn't a good one week look ahead indicator except when there's a well established multiweek trend and the intermediate term cycle agrees with it) strength this week ending 2-4 (an intermediate term downcycle is in place as of 1-28-05, which is the most important consideration this week) with 0.52% (135) more uptick blocks during the week ending 1-28. 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 67 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 negative on Friday 1-28 with NASDAQ A/D at 18:13 in favor of declining issues and NASDAQ Up/Down Volume was in favor of down volume by better than 13:8.

The NASDAQ wall of worry (VXN (NASDAQ 100 Volatility Index) and QQV (QQQ Volatility Index)) was a mixed picture on Friday 1-28 with VXN revealing that a significant rise in complacency occurred for NDX (NASDAQ 100) but QQV revealed that a very sharp rise in fear occurred for QQQQ (NASDAQ 100 Tracking Stock). The NASDAQ is deemed Timely but Risky on Monday. A short term downcycle was in place at Friday 1-28's close which points to weakness on Monday if it remains in place. Better than expected economic data may result in strength.

Williams %R for NDX is near oversold territory at -79.94 on 1-28-05 (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)). An intermediate term (1 to 12 months) cycle parabolic (see charts above) trendline sell signal occurred on 12-9-04 for NDX and was confirmed by sufficient downside shortly thereafter. A parabolic trendline intermediate term cycle buy signal occurred for NDX four weeks ago, but given the very long term downcycle since March 2000, parabolic trendline intermediate term cycle buy signals tend to be less effective, so one has to wait for a straight trendline buy signal before buying. MACD is on a sell signal (below it's moving average). RSI and Stochastics are on a sell signal.

A significant rise in complacency occurred for the NASDAQ 100 on Friday with VXN (NASDAQ 100 Volatility Index) unchanged +0.00 (+0.00%) to 18.58 while NDX (NASDAQ 100) fell -8.09 (-0.54%) to 1499.46 which reveals that a significant (0.50-1.99%) rise in complacency occurred for NDX because VXN was unchanged despite NDX falling significantly (NDX wall of worry shrank) which portends weakness in NDX on Monday, and, a short term downcycle was in place at session's end on Friday 1-28. 

A very sharp (3-6%, -0.49% decline in QQQQ + +3.74% rise in QQV = +3.25% which is a 3.25% rise in fear) rise in fear occurred for QQQQ (NASDAQ 100 Tracking Stock, -0.18 (-0.49%) to 36.92) on Friday since QQQQ fell modestly while QQV rose very sharply (QQQ Volatility Index, +0.63 (+3.74%) to 17.49) (QQQQ wall of worry shrank) which portends strength in QQQQ on Monday, but, a short term downcycle was in place at session's end on Friday 1-28. 

On Friday VIX (which is now calculated using the implied volatility of SPX (S & P 500) options instead of OEX (S & P 100) options) was unchanged +0.00 (+0.00%) to 13.24 versus a decline in SPX of -3.19 (-0.27%) to 1171.36 which was a modest (3-6%) rise in complacency for the S & P 500/value stocks (SPX is about 75% value stocks) since the wall of worry (VIX) was unchanged in percentage terms while SPX fell modestly (S & P 500) which portends weakness in SPX on Monday, and, a short term downcycle was in place at session's end on Friday 1-28.

The S & P 500 (SPX) is deemed Untimely on Monday. A short term downcycle was in place at Friday 1-28's close which points to weakness on Monday if it remains in place. Better than expected economic data may result in some strength. An intermediate term cycle (1 to 12 months) parabolic trendline sell signal occurred in late November. A parabolic trendline intermediate term cycle buy signal occurred for SPX four weeks ago, but given the very long term downcycle since March 2000, parabolic trendline intermediate term cycle buy signals tend to be less effective, so one has to wait for a straight trendline buy signal before buying. MACD is on a sell signal (below it's moving average). Stochastics and RSI are on sell signals. Williams %R for SPX is in near oversold territory at -76.39 on 1-28-05 (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)). 

The CBOE Total Put/Call Ratio at an elevated (at or above 0.75 but below 0.90) level of 0.77 at Friday's close points to weakness on Monday (the CBOE Index Put/Call Ratio at an extremely high 1.19 points to weakness) 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 in timing any market.

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

Looking at NASDAQ 100 (NDX) Chicago Mercantile Exchange Commitments of Traders - Futures Only (Reportable Positions as of January 25, 2005), the speculators (hedge funds and other speculators/traders) sold an unusually large (> 10% decrease in their long contracts) 1332 long contracts and added 664 short contracts which portends strength this week (contrarian indicator), but the unusually large degree of long liquidation points to some weakness (non contrarian case), whereas the commercial traders sold 1518 long contracts and covered 1721 short contracts which portends modest strength this week (non contrarian indicator). 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.) @ 26.4% bullish last week from 33.7% the prior week is a positive factor for the prospects of stocks during the week ending 2-4-05 because it's at an extremely low level of bullishness where it becomes contrarian, at least from an intermediate term cycle standpoint (a few weeks/months). 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 2-4-05 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 - The US Dollar's Intermediate Term Upcycle Sent Gold/Silver Stocks Down Last Week

• NEM has outperformed HUI and the XAU by a wide margin since 1-6-05, which is a major positive. The Commitments of Traders (COT) data the past four weeks overwhelmingly points to substantial strength in gold and silver in the near future. The XAU Put/Call Ratio at a very high 1.12895 points to substantial strength in the XAU in the near future. The extreme bearishness of gold timers (most bearish since 1997) points to substantial strength soon. This confluence of factors, combined with the major buy signals that occurred for HUI, NEM, and the XAU on 1-21-05 (discussed last week), clearly portends substantial strength in the precious metals sector in the near future.

• The USD countertrend rally (intermediate term upcycle, see chart) has flattened out this cycle/bottoming process for gold/silver stocks, and, cycles are usually flat early on anyway. So, there's nothing unusual about the action in the gold/silver stock market recently. Keep in mind that HUI rose 51.50% from it's long term cycle low at 163.81 on 5-10-04 to it's major top (long intermediate term cycle high) at 248.18 on 11-17-04, which was a 51.50% gain in about six months time. Not bad.
  

• HUI and NEM's January 6 lows at 200.33 and 41.26 held last week as expected, because they had successfully tested those lows prior to last week. The XAU however hadn't tested it's low at 92.55 (on 1-18) until last week, when two lower lows occurred. The XAU successfully tested it's low at 91.23 on 1-27-05 with a very short term cycle low at 91.28 on 1-28-05, which means that gold/silver stocks are probably headed higher on Monday 1-31, because the XAU began a modest uptrend/short term upcycle late last week.
  

• My system doesn't indicate that an XAU major bottom/intermediate term cycle low probably occurred on 1-27-05 (at 91.23) until after a higher short term cycle low occurs, because, by definition, once a higher short term cycle low occurs, then an intermediate term upcycle is in place (comprised of a series of higher short term cycle lows). Therefore, the XAU's very short term cycle low at 91.28 on 1-28-05 doesn't indicate that 1-27's low at 91.23 is a likely major bottom, even though I suspect it is. The fact that HUI and NEM have successfully tested their lows on 1-6-05 (probably bottomed) probably makes this an academic exercise.
  

• The lesson the major correction (began on 11-17-04 and probably ended on 1-6-05 for HUI/NEM) taught me is the importance of waiting for a higher short term cycle low (a successful test) to be established, especially near major cycle lows. Intermediate term cycle buy signals (within long term and very long term upcycles) after garden variety 8-12% corrections (that usually last 1 to 2 weeks) almost always (in a Bull Market/very long term upcycle, I've never seen one fail) mean that the low is in. 
  

• NEM is outperforming HUI and the XAU by a very wide margin, as can be seen in the one week NEM Lead Indicator chart (first chart), so the NEM Lead Indicator is very bullish. NEM outperformed the XAU every day last week: 1-28 NEM -0.24% vs -0.53% for the XAU, 1-27 NEM +0.14% vs -0.46% for the XAU, 1-26 NEM +1.01% vs +0.81% for the XAU, 1-25 NEM -1.37% vs -2.67% for the XAU, 1-24 NEM -0.71% vs -0.82% for the XAU.
  

• The reliability of the NEM Lead Indicator is truly amazing. For example, the week before last (4 day week), NEM outperformed the XAU early in the week (1-19 NEM -0.33% vs -0.52% for the XAU, 1-18 NEM +1.41% vs +0.83% for the XAU), correctly portending strength late in the week (major buy signals occurred on 1-21-05). Then, NEM underperformed the XAU late in the week (1-21 NEM +1.77% vs +2.08% for the XAU, 1-20 NEM -1.32% vs -0.44% for the XAU) by a wide margin of over 1%, which correctly portended weakness last week.
  

• I may go to Las Vegas next week, so there might not be an update next weekend.
  

• In early 2003 there was a lengthy major correction/intermediate term downcycle within a long term upcycle, so major corrections within long term upcycles aren't unusual (make sense with cycles) and should be expected (are healthy) after long intermediate term upcycles (long intermediate term cycle highs for HUI, NEM, and the XAU occurred on 11-17-04).
  

• HUI, NEM, and the XAU experienced major buy signals on Friday January 21 when they broke through their intermediate term downcycle trendlines (in place since 11-17-04) and followed through for 3 hours and 2% or more upside. As one can see in HUI's 3 month chart it broke it's downtrend line on Tuesday 1-18, but didn't follow through enough to trigger the major buy signal until Friday 1-21. 

• The unusually large rise in the XAU Put/Call Ratio to 1.29586 for the February expiration on 1-21 versus 0.65704 for the final January expiration value on 1-21 was an unusually large rise in fear that correctly portended weakness last week, along with the NEM Lead Indicator that turned negative the week before last (1-21 NEM +1.77% vs +2.08% for the XAU, 1-20 NEM -1.32% vs -0.44% for the XAU). However, the dramatic rise in fear is a major positive on an intermediate term cycle basis (a few weeks/months) because there's a healthy wall of worry to climb.
  

• In HUI's 1 year chart one can see that it's long term upcycle has probably increased in strength, which is obviously a major positive. Also, as one can see in it 's 5 year chart dated 12-17-04, HUI's very long term upcycle is in a sharper uptrend now than it was during the first couple of years of this Bull Market since late 2000 (November 2000 for HUI).
  

• The latest Commitments of Traders (COT) data (as of 1-25-05) reveals that the reliable non contrarian gold/silver Commercial Traders continued to correctly trade net long, while the normally notoriously contrarian gold Speculators (but not silver) also traded net long, which is a rare instance where they traded in the same direction as the gold Commercial Traders. The gold Commercial Traders covered 8901 short futures and options contracts. The gold Speculators covered 1405 short futures and options contracts. The US Dollar Commercial Traders added an unusually large (> 10% of the short contracts) 2044 short futures and options contracts which portends USD weakness in the near future, but also portends some strength in the USD this week (contrarian case for this normally non contrarian indicator). All the details of last week's COT data are near the bottom of this update.

• The Commitments of Traders (COT) data (as of 1-18-05) revealed that the dramatic repositioning that occurred in the prior two weeks ended, but the reliable non contrarian gold/silver Commercial Traders continued to correctly trade net long while the notoriously contrarian gold/silver Speculators continued to trade short. The gold Commercial Traders covered 8344 short futures and options contracts. The notoriously contrarian gold Speculators added 4549 short futures and options contracts.
  

• The Commitments of Traders (COT) data (as of 1-11-05) revealed that dramatic repositioning continued to occur. As they did the week before, the reliable non contrarian gold Commercial Traders covered an unusually large (> 10% of the short contracts) 32,419 short futures and options contracts. The notoriously contrarian gold Speculators sold an unusually large (> 10% of the long contracts) 31,419 long futures and options contracts. A big difference in this week was the gold Commercial Traders correctly looked for significant strength in gold (and silver), because they added 5421 long futures and options contracts versus only 825 the week before, when they correctly expected modest strength. There were similar large changes in silver and the US Dollar.
  

• The Commitments of Traders (COT) data as of 1-4-05 revealed that dramatic repositioning occurred . The reliable non contrarian gold Commercial Traders covered an unusually large (> 10% of the short contracts) 35,004 short futures and options contracts, the notoriously contrarian gold Speculators sold an unusually large (> 10% of the long contracts) 30,018 long futures and options contracts, and there were similar large changes in silver and the US Dollar, except for the silver Speculators.
  

• Gold hit an intermediate term cycle buy signal three weeks ago (see 3 month chart), which correctly suggested that gold stocks would soon do so as well. Since a major correction had been and still might be under way for gold (since gold tends to lag gold stocks), there's a small chance that the buy signal is a parabolic buy signal rather than a straight trendline buy signal (see latest 3 month chart for the safer straight trendline), but, given the proximity to it's long term upcycle trendline (see 1 year chart), it's very likely to be a straight intermediate term cycle buy signal. 

• A buy window opens up after a parabolic trendline buy signal (buy window means look to buy don't mechanically buy) as long as the longer cycles, which in this case are the long term and very long term cycles, are heading up. So, even if this buy signal turns out to be a parabolic trendline buy signal for gold, one still should do well by going long now because the buy window is open on an intermediate term cycle basis and gold isn't far from it's long term upcycle trendline.
  

• The report I received via e mail from Marketocracy for the week ending 1-28-05: "JFR - Joe F. Rocks's Mutual Fund, Net Asset Value (NAV): $10.16, Compliant: Yes, This past week Return: -2.97%." HUI (AMEX Gold Bugs Index) was down -3.76% last week for comparison, so JFR outperformed HUI in each of the past two 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 1.6% since it's inception on 1-5-05.
  

• As one can see in gold's 1 year chart, it's long term upcycle trendline remains intact. Gold's biggest percentage decline occurred since late December whereas gold stocks biggest percentage decline occurred before the December 8, 2004 short term cycle low, which is another example of the metal lagging the stocks.

• The next 6 months or more, following the major bottom that occurred on 1-6-05 for HUI/NEM and possibly on 1-27-05 for the XAU, should be the sharply rising segment of the long term upcycle that began on 5-10-04, similar to the April 2003 to December 2003/January 2004 timeframe in the previous long term upcycle for HUI, NEM, and the XAU. Please see the 5 year NEM chart dated 1-7-05 which shows that NEM was recently near the bottom of it's very long term upcycle/Bull Market channel (the last bar should be closer to the bottom than it's shown since NEM's low was 41.38 on 1-7-05) and it's long term upcycle should soon "go parabolic" in similar fashion to what occurred in the prior long term upcycle. This means that the next 6-12 months should be even better than the previous 6 months, and probably dramatically better. Long term cycle highs well above the previous ones should occur (at 258.60 for HUI on 12-2-03, at 50.28 for NEM on 12-2-03, and at 113.41 for the XAU on 1-6-04), based on well established cyclic behavior (see 4-5 year charts).

• Before I thought 12-8-04 was a major bottom my intermediate term cycle low targets for HUI and the XAU were 190-200 and 90-95 based on their long term upcycle trendlines, as discussed in my first update in December 2004. HUI and the XAU bottomed near their long term upcycle trendlines, so the target ranges were good ones and cycles proved to be an effective market timing tool as usual. The most important consideration in timing any market is the cycle channels/trendlines.

• Going back to the prior long term upcycle for NEM that began on 7-26-02 (see 5 year chart dated 1-7-05) one can see that NEM was relatively flat in the second half of 2002 and in early 2003, yet HUI still rose about 170% in it's long term upcycle from 7-26-02 until 12-2-03. HUI, NEM, and the XAU were relatively flat during the first 8 months of their prior long term upcycle (from 7-26-02 until the end of March 2003), as can be seen in their 4 and 5 year charts. In April of 2003 the prior long term upcycle went parabolic (the rate of ascent increased dramatically), which is what I think will happen after this major intermediate term cycle low. HUI, NEM, and the XAU are likely to soon enter the steep part of their long term upcycle curves, now that the major bottom is in.

• NEM has an upside gap to fill just below 44.50.
  

• I update my gold/silver stock "Current Assessment" near the top of my home page (middle of the second bullet) five days a week, 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 every day just above the "Current Assessment." Fascinating!
  

• The US Dollar (USD) is in an intermediate term upcycle as can be seen in the latest USD chart. The USD's intermediate term upcycle should be limited by it's very long term downcycle/Bear Market trendline, currently a bit below 85.  

• An important factor is the fact that the US Dollar's very long term downcycle trendline (see chart) is converging with major support in the 80 area, so a major breakdown in the USD is likely in the not too distant future, and will probably occur in this long term upcycle (that's likely to last another 6-12 months).
  

• Keep in mind that very long term upcycles (secular Bull market in gold/silver stocks) began in October 2000 for NEM/XAU and in November 2000 for HUI. There are very long term cycle charts below. An important development portending increased strength in gold/silver stocks is the fact that the very long term upcycle trendlines for HUI, NEM, and the XAU are now in a sharper uptrend than they were during the first couple of years of this gold/silver stock Bull Market (see 5 year HUI chart dated 12-17-04, 5 year NEM chart dated 8-19-04, and the 5 year XAU chart dated 10-20-04). Gold began a very long term upcycle in April 2001 and silver did in November 2001.
  

• Buy and hold for most investors/traders (until the long term cycle high in probably about 6-12 months) makes a lot of sense unless you're a nimble trader. Nimble traders have a good chance (using my "Trade the Cycles" system) of increasing returns by trading intermediate term cycles that typically last 1 to 3 months for an entire cycle up and down. Most traders/investors are much better off buying and holding long term upcycles.
  

• XAU Implied Volatility fell -1.91% to 25.115 on Friday 1-28 from 25.605 on 1-27 versus a -0.53% decline in the XAU on 1-28, which is a sharp (2-2.99%) 2.44% rise in complacency (-1.91% + -0.53% = -2.44%. The XAU wall of worry shrank by 2.44%, therefore complacency rose by 2.44%) that portends weakness/a downtrend on Monday 1-31 (complacency is usually contrarian and therefore normally portends weakness, until it reachs an unusually large level (> 6% increase) where it becomes non contrarian). That weakness/downtrend could follow a gap up at the open. XAU Implied Volatility tends to indicate a trend/tone rather than necessarily up or down for that 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 1.12895 for the February expiration as of 1-28. 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 (but all indicators and cycle channels/trendlines must be considered collectively, not in isolation. Think "system.") in the XAU on Monday 1-31 is the fact that NEM outperformed the XAU since 1-6-05 by +3.32%, which is a good sign: 1-28 NEM -0.24% vs -0.53% for the XAU, 1-27 NEM +0.14% vs -0.46% for the XAU, 1-26 NEM +1.01% vs +0.81% for the XAU, 1-25 NEM -1.37% vs -2.67% for the XAU, 1-24 NEM -0.71% vs -0.82% for the XAU, 1-21 NEM +1.77% vs +2.08% for the XAU, 1-20 NEM -1.32% vs -0.44% for the XAU, 1-19 NEM -0.33% vs -0.52% for the XAU, 1-18 NEM +1.41% vs +0.83% for the XAU, 1-14 NEM -0.99% vs -0.92% for the XAU, 1-13 NEM -1.10% vs -0.95% for the XAU, 1-12 NEM +0.78% vs +0.01% for the XAU, 1-11 NEM +1.87% vs +0.91% for the XAU, 1-10 NEM +0.39% vs +0.81% for the XAU, 1-7 NEM -0.24% vs +0.41% for the XAU, 1-6 NEM -0.17% vs -0.35% for the XAU.                     

• There's an early warning system in place! When NEM underperforms HUI/the XAU for a few months then the long term upcycle that began on 5-10-04 will probably be in trouble, as was the case during the last few months of the prior long term upcycle that ended on December 2, 2003 (HUI/NEM)/January 6, 2004 (the XAU) and began on July 26, 2002. 
  

• The negative correlation between gold and the USD is now very high. It's -92% on 1-28 (-93% on 1-14) for the past 180 days for gold, according to Moore Research Center, Inc. For silver the negative correlation with the USD is -67% on 1-28 (-71% on 1-14) for the past 180 days. Silver's negative correlation is much less than gold's because it's more of an industrial metal than gold is, hence it has a more positive correlation with US economic strength and a strong US Dollar.

• The reliable non contrarian (in terms of their trading activity) gold Commercial Traders are short gold. They are clearly positioned for gold weakness with only 117,157 long futures and options contracts versus 217,872 short futures and options contracts (data as of 1-25-05).
  

• The notoriously contrarian (in terms of their trading activity) gold Speculators are correctly positioned for gold strength with 108,245 long futures and options contracts versus only 43,434 short futures and options contracts (data as of 1-25-05).

• The gold Commercial Traders sold 7538 long futures and options contracts and covered 8901 short futures and options contracts which portends strength this week (non contrarian indicator), but the sale of 7538 long futures and options contracts portends some weakness. The most important consideration in timing any market is the cycle channels/trendlines (see charts below) and keep in mind that the data is as of 1-25-05 for all the COT data in this update, 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 596 long futures and options contracts and covered 1405 short futures and options contracts which portends weakness this week (contrarian indicator). The most important consideration in timing any market is the cycle channels/trendlines (see charts below). 

• The reliable non contrarian (in terms of their trading activity) silver Commercial Traders are short silver. They are clearly positioned for silver weakness with only 23,572 long futures and options contracts versus 78,636 short futures and options contracts as of 1-25-05.

• The notoriously contrarian (in terms of their trading activity) silver Speculators are correctly positioned for silver strength with 40,835 long futures and options contracts versus only 10,196 short futures and options contracts as of 1-25-05.

• The silver Commercial Traders sold 1518 long futures and options contracts and covered 2900 short futures and options contracts which portends strength (non contrarian indicator) this week, but the sale of 1518 short futures and options indicates they expect some weakness. The most important consideration in timing any market is the cycle channels/trendlines (see charts below).

• The silver Speculators (hedge funds and other speculators/traders) sold 1364 long futures and options contracts and added an unusually large (> 10% of the short contracts) 1009 short futures and options contracts which portends strength this week (contrarian indicator), but the unusually large degree of shorting points to some weakness (non contrarian case). The most important consideration in timing any market is the cycle channels/trendlines (see charts below).

• The reliable non contrarian (in terms of their trading activity) USD Commercial Traders are clearly positioned for US Dollar strength with 9421 long futures and options contracts versus only 5511 short futures and options contracts as of 1-25-05. Last week they added 102 long futures and options contracts and added an unusually large (> 10% of the short contracts) 2044 short futures and options contracts which portends USD weakness this week (non contrarian indicator), but the unusually large degree of shorting points to some strength (contrarian case). Three weeks ago they sold an unusually large (> 10% of the long contracts) 3356 long futures and options contracts. Four weeks ago the USD Commercial Traders sold an unusually large (> 10% of the long contracts) 4626 long futures and options contracts. The most important consideration in timing any market is the cycle channels/trendlines (see charts below).
  

• The notoriously contrarian (in terms of their trading activity) USD Speculators are correctly positioned for US Dollar weakness with only 4566 long futures and options contracts versus 10,043 short futures and options contracts as of 1-25-05. Last week they added an unusually large (> 10% of the long contracts) 678 long futures and options contracts and covered 189 short futures and options contracts which portends USD weakness this week (contrarian indicator), but the unusually large increase in their long position points to some strength (non contrarian case). The most important consideration in timing any market is the cycle channels/trendlines (see charts below). 

• 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.
  

• An e mail I sent to the author (doesn't matter who it was) in response to a China Article: "I agree that China is a major factor and may become a superpower in the next 10 years or so, BUT, just as Japan dominated the 1980s and talk was of Japan surpassing the US, China is in an economic bubble (as Japan was in 1989 and the US in 2000) that will burst in the relatively near future, possibly this year.
   
  Once a country is "all over the news" a major top is near, as it was with Japan in 1989 and the US in 2000. China has all kinds of bad loans and major problems that probably will make their bust a severe one. Just as in the stock market, when people become euphoric about a country's economy, the top is near. I guarantee you China isn't immune to economic cycles and their cycle high is probably near and may have already occurred possibly. One has to think in contrarian terms when timing markets, wether it's the stock market or an economy.
   
  You don't really think China will keep growing at 10% or whatever their growth rate is for much longer, do you? It is a bubble. A country that size can't grow at that rate for much longer. It's IMPOSSIBLE. I agree that China is and probably will become more of a factor, but they aren't immune to economic cycles, any more than Japan or the US is."

• The remainder of the bullets are unchanged from last week. The US economic big picture discussion is worth leaving in for another week.
  

• The 10 Year T Bond yield bottomed in mid June 2003, so the 10 Year T Bond has been in a Bear Market since mid June 2003. The US is in an inflationary, rising interest rate, commodities Bull Market environment similar to the 1970s. Gold was in a Bear Market from 1980 until April 2001, or 21 years. Paper assets in the US are in a very long term downcycle/secular Bear Market, with the major US stock averages peaking/hitting very long term cycle highs in March 2000 and the 10 year T Bond peaked/hit a very long term cycle high in mid June 2003.
  

• A few words about the US economy and why the US Dollar (USD) is likely to remain in a Bear Market for a very long time, which jives with the USD's very long term downcycle since mid 2001. The US economy and stock market experienced a bubble or what my "Trade the Cycles" system calls a "very long term cycle high" in 2000, with the major US averages peaking in March of 2000. Bubbles/very long term cycle highs for the US major averages occur about every 35 years, with one occurring in 1897, 1929, the mid 1960s, and in March 2000. The US has been in a major economic bust since 2000, similar to Japan's since 1989 (The Nikkei remains dramatically below 1989 levels).
  

• President Bush's administration has flooded the system (US economy) with money via easy credit (credit card and refinancing boom), rock bottom rates, huge budget deficits (more than $600 Billion in 2004), as well as tax cuts in recent years. For example, in the third quarter of 2003 Child Credit Tax Rebate checks totaling $14 Billion accounted for about half of the economic growth during that quarter (8% or so growth which was a 1 quarter spike due to the $14 Billion in checks). Because of the major US economic bust since early 2000 massive stimulus (flood of money/US Dollars) has been used in order to achieve adequate economic growth, which has led to a USD Bear Market/very long term downcycle since mid 2001.
  

• Because most of the stimulus in recent years has been from the housing boom (rock bottom rates and easy money lending practices from the Federal Reserve Bank and lenders spurred this), mortgage refinancing, credit card lending, budget deficits, and tax cuts, an easy money policy (and massive budget deficits) will have to remain in place in the US for a very long time, because the mortgage refinancing and housing boom is over, credit card lending will be adversely affected by rising rates, and taxes can only be cut so far. A number of the major factors behind the huge economic stimulus in the US in recent years will or already have declined dramatically. What this means is that huge budget deficits, an easy money policy (maybe even easier in order to offset rising short and long term interest rates and the dramatic decline in the other stimulus factors), and possibly more tax cuts probably will be needed in order to stave off a recession in the US.
  

• The alternative to massive monetary stimulus in the US in recent years  is to have a very long recession (basically a depression) which, because the US is the world's growth engine (the consumer), would have drastic worldwide ripple effects that would in turn have a very long term effect ("ripple back") on the US. The magnitude of the bubble in the US in 2000 (like the Tulip mania in Holland in the 1600s) required drastic action and should result in the US Dollar remaining in a Bear Market/very long term downcycle for a very long time. Other than understanding the big picture/very long term cycle the fundamentals are of little if any use in market timing, unless you happen to know that a particular economic report will be much better or worse than expected.
  

• My "Trade the Cycles" system doesn't use fundamentals at all, but one should understand the underpinnings of the very long term downcycle in the US economy, the major US stock indices and the US Dollar, and, why gold/silver stocks should be a great investment for a very long time (until about 2018 based on past cycles, gold was in a very long term downcycle from 1980 until April 2001). At 20%/year one arrives at a ten year price target of $2631.50 for gold: $425ish as of 1-21-05 - $510 in 2005-2006 - $612  in 2007 - $734.40 in 2008 - $881.28 in 2009 - $1057.54 in 2010 - $1269.05 in 2011 - $1522.86 in 2012 - $1827.43 in 2013 - $2192.92 in 2014 - $2631.50 in 2015.
  

• Another reason why the US Dollar (USD) will probably continue to decline for years to come? The US is the only country to my knowledge that pays it's foreign debts in it's own currency. Therefore, by dramatically devaluing the USD, the US greatly reduces it's foreign debt load.

• 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, so I got in shortly before HUI hit a major bottom very early on 1-6-05. 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. My current holdings are ABX (Barrick Gold), AGT (Apollo Gold), CDE (Coeur D' Alene, mostly silver), DEZ (Desert Sun, mostly gold), FCX (Freeport McMoran, gold/copper), HL (Hecla Mining, a gold/silver mix but silver at heart), GG (Goldcorp, mostly gold), GLG (Glamis Gold), GSS (Golden Star, mostly gold), MDG (Meridian, mostly gold), NEM (Newmont Mining, mostly gold), NG (Novagold), NTO (Northern Orion, mostly gold), PAAS (Pan American Silver), SIL (Apex Silver), SSRI (Silver Standard Resources), and WTZ (Western Silver). 

• Please don't take these as recommendations, they're not. I'm in the business of providing market timing information and most of the money I make is from trading in my personal accounts (I don't have a subscription service, at least not yet). 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 6 months (when they'll first rank my fund), partly because of how great the gold/silver stock market is, but largely 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 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. Desert Sun (DEZ) wasn't identified as a mining firm by Marketocracy for some weird reason, thus the 1% other in the sector allocation.

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 much more likely than a non market cap weighted index like HUI of exhibiting anomalous/unusual behavior as NEM and the XAU have recently. Their long term downcycle trendlines were broken to the upside a few times, but a lack of sustained substantial followthrough meant those buy signals weren't confirmed.

Both NEM and the XAU's long term downcycle trendlines have become less parabolic/sharply declining in recent months with both long term and intermediate buy signals appearing to have occurred yet meaningful followthrough failed to occur and those major buy signals were NOT confirmed, which vindicated my assumption that a long term buy signal (break above the long term downcycle trendline and substantial followthrough) won't occur until after the XAU falls to it's Bull Market/very long term upcycle trendline in the 70-75 area in the next few months.

NEM's anomalous/unusual behavior caused the XAU to exhibit similar behavior because of the huge influence NEM has on the market cap weighted XAU, but such behavior did NOT occur with HUI.

HUI's long term downcycle trendline has not been pushed up like the XAU and NEM's have been (see their charts below) because it's not a market cap weighted index. Hence, it's very important to watch HUI as closely as the XAU and NEM. That's a major lesson I learned.

Understanding cycles is by far the most important part of my system. The fact that the long term cycle has turned down is extremely important as is the fact that the intermediate term cycle turned down also. The long term cycle's downtrend will become more steep and the intermediate term cycle's downtrend will become more steep.

If the long term, intermediate term, and short term cycles are all heading down one should expect much less strength when the XAU Put/Call Ratio portends strength than if those cycles were all heading up. The XAU Put/Call Ratio jumped 5.44% on Friday 2-27 (1.17251 to 1.23624 for the March expiration), yet, from the intraday/very short term (hours/days) cycle low in negative territory to the short term cycle high the XAU rallied less than 1.50%. If the long term and intermediate term cycles had been heading up instead of down the XAU probably would have risen at least twice as much as it did on Friday 2-27.

One also must consider where gold stocks are in their cycles. The long term downcycle's weakness has increased significantly since beginning on 1-6-04 for the XAU and on 12-2-03 for HUI BUT it will get weaker.

The primary consideration in assessing gold stock timeliness (or any market's timeliness), even on a one session basis, is what the cycles are doing. Long term, intermediate term, and short term cycles MUST be considered and very short term (hours/days) cycles can occasionally be important. It can be difficult to differentiate between short term (days/weeks) and very short term (hours/days) cycles much of the time. You might not know until after the fact that a cycle was short term or very short term.

HUI, NEM, and the XAU as of 5-14-04

HUI, NEM, and the XAU as of 4-23-04

NEM (most important) and the XAU's Very Long Term Cycle as of 1-16-04

The date in the annotation below should be 10-10-02 (10-8-02 for NDX) not 11-10-02:

Silver stocks like CDE, HL, and PAAS may present good long opportunities since silver is more volatile than gold BUT since NEM, the XAU, and HUI are in long term downcycles risk has greatly increased. SSRI and SIL tend to be too thinly traded which is why I don't recommend trading them. PAAS can be too thinly traded also but recently PAAS has tended to have daily volume above one million shares. CDE is the most liquid and probably the best silver stock to trade because it usually has at least 2-3 million shares/day. One tends to get better and much faster executions for market orders (also limit orders may not get filled at the price you want and you may have to cancel and re enter an order with illiquid stocks) with a liquid stock than an illiquid stock.

Something very important to keep in mind is that gold stocks/gold have an inverse relationship/negative correlation with the US Dollar much more so than with the US major averages (though in the very long term the negative correlation may be about the same). Both HUI, the XAU, and the US major averages have enjoyed a huge run since mid March 2003. Obviously they haven't had a negative correlation since mid March 2003. However, the US Dollar (December 2003 contract) has fallen from nearly 100 in early September 2003 to nearly 89 on 12-5-03 for nearly an 11% decline for example.

Also, as I've discussed previously, NEM (Newmont Mining) is in the S & P 500 (SPX) so index mutual funds buy or sell NEM when SPX rises or falls, which accounts for the high correlation much of the time between gold stocks and the major averages (especially SPX of course).

The theory is that when the XAU Put/Call Ratio (for the nearest expiration) appears to fail it tells you something that's extremely important. It probably indicates that an intermediate term cycle high or low is imminent, that it will probably occur during that session or in the very near future. The intermediate term cycle is near or at it's maximum strength or weakness and is overriding the normally very reliable XAU Put/Call Ratio (for the nearest expiration).

Also, as one can see in the next chart the XAU (as of 11-28-03) was very near the top of it's long term cycle rising peaks trendline, so the long term cycle was near or at it's maximum strength which tended to override the normally very reliable XAU Put/Call Ratio (for the nearest expiration).

The point is when the XAU is overbought (RSI > 70) near an intermediate term cycle high or oversold (RSI < 30 but the ascending triangle formation limited the downside and RSI hasn't been falling below 30 at recent intermediate term cycle lows) near an intermediate term cycle low and the XAU Put/Call Ratio (for the nearest expiration) appears to fail it probably indicates that an intermediate term cycle high or low is imminent, which is obviously a very important piece of information.

The XAU Put/Call Ratio (for the nearest expiration) may be an even better indicator than I thought (which makes an amazingly accurate indicator even more so). If interpreted properly it may bat 1000 (100%) or very close to it. This is just a theory right now, but I believe it's a correct one until proven otherwise (because the XAU Put/Call Ratio (for the nearest expiration) is being overriden by the intermediate term cycle (and possibly also long term cycle in this case) being near or at it's maximum strength (or maximum weakness when it failed on 11-6 the day before 11-7's intermediate term cycle low)).

The XAU Put/Call Ratio (for the nearest expiration) must be used in concert with cycles (from very short term (hours/days) to very long term (3-10+ years)) to be properly interpreted, so when cycles are bottoming or peaking they can make the XAU Put/Call Ratio (for the nearest expiration) "fail" but I think they are overriding it and that "failure" really is a very important indication that a cycle is bottoming or peaking. In fact, HUI and the XAU experienced intermediate term (months) cycle highs on Tuesday 12-2 at 258.60 and 112.75 respectively.

Assuming that gold began a very long term (3 to 10+ years) Bull Market in mid 2001 (about 7-8 months after the gold stocks), it was logical to assume that the prior eight year cycle high at about $418/ounce (in late 1995) would be exceeded as has already occurred.

The chart below (as of 11-28-03) shows the very long term (3 to 10+ years) cycle for the XAU which began in late October 2000. The very long term uptrendline implies that a long term cycle low will occur in the 70-75 range during the next few months. The annotation regarding the long term cycle high is old.

Keep in mind that the stocks usually lead the metal and that NEM (Newmont Mining) usually leads the stocks, so NEM is (appears to be) an extremely important indicator. Note that I do NO TECHNICAL ANALYSIS ON THE METAL HERE. I may decide it's necessary in the future of course (never stop learning and conditions may change).

More evidence that NEM is an excellent lead indicator for gold stocks:

Since Newmont Mining (NEM) influences the XAU to a much greater extent than it influences HUI because the XAU is market cap weighted, I've come to appreciate the XAU more recently since NEM seems to be a very good leading indicator (see the charts below and the one above) for gold stocks (and usually silver stocks), but more research is required. NEM's chart can be watched and used as a leading indicator (it appears). The second chart dated October 9 shows that NEM outperforming the XAU prior to the October 3 (a few cycles ago) intermediate term cycle low correctly portended strength.

I need to update how I'm using the XAU Put/Call Ratio (for the nearest expiration). The comparison method with the percentage change in the XAU discussed below is ONLY used when the XAU Put/Call Ratio (for the nearest expiration) doesn't change the next day. In recent months it's been changing nearly every day.

I simply calculate (Simply divide the total put open interest by the total call open interest to arrive at the XAU Put/Call Ratio.) the XAU Put/Call Ratio (for the nearest expiration) just before the session begins and calculate the percentage change from the prior day (a rise to 1.05 from 1.00 for example is a very sharp (3-6%) 5% rise in fear that portends dramatic strength) to determine wether fear or complacency has crept in to the XAU.

I don't compare it to the change in the XAU until the end of the day in case it doesn't change the next day. If the XAU Put/Call Ratio (for the nearest expiration) rises 2% and the XAU falls by 1% that's a delta of +1% which is a significant rise in fear. A delta of -1% is a significant rise in complacency. This comparison method is only used when the XAU Put/Call Ratio (for the nearest expiration) remains unchanged the next session.

Also, there may be/probably is more merit in comparing the XAU Put/Call Ratio (for the nearest expiration) to the XAU's % change at the open when it doesn't change as opposed to comparing it to the prior day's change. Since in recent months it's changed nearly every day I don't have nearly enough data to know which method works better, but it makes more sense I think to compare an unchanged XAU Put/Call Ratio (for the nearest expiration) to the open (or the early tone in case there is very brief weakness followed by strength or vice versa) rather than the prior session's change.

As discussed below an unusually large rise (> 6%) portends weakness (a relatively rare non contrarian case for this typically contrarian indicator) and an unusually large decline (> 6%) portends strength (a relatively rare non contrarian case for this typically contrarian indicator). Unusually large moves in contrarian indicators usually makes them non contrarian because usually "something's up" which causes the unusually large move in the indicator.

One must keep in mind that the XAU Put/Call Ratio (for the nearest expiration) MUST BE USED in concert with very short term and intermediate term cycles/trendlines. If one doesn't have the proper trendlines (with price targets based on them and sell signals acted on when uptrendlines break down or buy signals acted on when a trend change to an uptrend occurs) then the XAU Put/Call Ratio (for the nearest expiration) may appear to have failed when in fact it worked.

One should check the XAU Put/Call Ratio (for the nearest expiration) very early in the session to see if it's changed significantly and determine wether fear or complacency has crept into the XAU. Simply divide the total put open interest by the total call open interest to arrive at the XAU Put/Call Ratio. A % rise up to and including 6% (rise in fear) portends strength because the XAU Put/Call Ratio (for the nearest expiration) is usually a contrarian indicator. A % rise > 6% is an unusually large rise in fear that portends weakness (non contrarian case for this usually contrarian indicator). A % decline up to and including 6% is a rise in complacency that portends weakness. A % decline > 6% is an unusually large rise in complacency that portends strength (non contrarian case for this usually contrarian indicator). The larger the % changes are the more the XAU tends to move that day.

The XAU Put/Call Ratio (for the nearest expiration) which "didn't work" (but really did in a sense) or didn't work well in a number of sessions recently (when it portended strength during the intermediate term downcycle from 1-6-04 to 1-15-04) provides insight into where gold stocks are in their cycles (short, intermediate, and long term). By not working or not working well (it normally works well about 90% of the time when properly used in concert with cycles/trendlines) during 3 or 4 recent sessions it was a major warning that the intermediate term cycle and possibly also the long term cycle had turned down. I'm going to try to get better at observing this in the future.

I've come up with a potential new "region" (interpretation) for the XAU Put/Call Ratio (for the nearest expiration). Conceptually I think most people will agree/grasp that there's a point at which fear (bearishness) becomes so extreme that there's no place for a market to go but up and conversely there's a point at which complacency (bullishness) becomes so extreme that there's no place for a market to go but down. Also, there's almost certainly a point at which a sentiment change/delta (rise in fear or complacency) becomes so extreme that the same phenomenon occurs.

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

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The dashed lines above were for the folks at Trading-Ideas.Com and AfterHourTrades.Com so they knew which commentary to use when this commentary was updated daily.

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

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NASDAQ "Institutional" (really block trading data that includes individuals as well) Money Flow (Primary growth stock indicator) for the week ending 1-28 = Modestly Positive. Uptick block trades outpaced downtick block trades (135 more uptick blocks) by 0.52% (1.17% more downticks the prior week, 0.24%, 1.91% more upticks the prior two weeks, 5.35%, 4.73%, 1.55%, 2.15%, 3.26%, 5.82%, 1.77%, 3.04%, 2.77%, 4.76%, 2.16%, 0.80%, 1.13%, 4.28% more downticks the prior 14 weeks, 1.63% more upticks the prior week, 1.12%, 5.77%, 1.63%, 1.19%, 6.08% more downticks the prior five weeks, 0.71%, 3.22% more upticks the prior two weeks, 2.53% more downticks the prior week, 0.94%, 1.79%, 1.16%, 1.89% more upticks the prior four weeks, 1.54%, 3.34%, 0.74%, 2.49%, 7.70%, 1.04%, 1.67%, 1.25% more downticks the prior eight weeks, 3.51% more upticks the prior week, 3.68%, 0.46%, 2.99%, 4.75%, 3.36%, 1.05%, 0.41%, 3.86%, 3.64%, 0.31%, 3.74%, 3.47%, 2.26%, 2.61%, 5.20%, 5.86%, 2.86%, 7.41%, 2.27%, 2.71%, 1.50%, 4.87%, 3.32%, 2.82%, 5.31%, 3.04%, 0.84% more downticks the prior 27 consecutive weeks, 1.82%, 1.47% more upticks during the prior two weeks, 0.85% more downticks during the prior week, 0.34%, 0.33%, 0.28% more downticks during the three weeks ending 9-12-03 (two weeks were skipped after this), 0.36%, 0.93%, 2.48%, 1.05%, 1.28%, 1.76% more upticks the prior six weeks, 1.99%, 2.61% more downticks the prior two weeks, 2.04% more uptick blocks the prior week, 0.66% more downtick blocks the prior week, 1.13% more uptick blocks the prior week, 1.74%, 4.84% more downtick blocks the prior two weeks, 2.20% more uptick blocks the prior week, 1.53% more downticks the prior week, 0.59% more upticks the prior week, 1.65%, 0.74%, 1.72% more downticks the prior three weeks, 5.67%, 2.54%, 0.80% more upticks the prior three weeks, 1.36% more downticks the prior week, 1.27%, 2.98%, 2.86%, 1.58%, 2.42%, 3.97%, 2.87%, 4.46%, 3.58% more upticks the prior nine weeks, 0.70% more downticks the prior week, 0.35% more upticks the prior week, 0.78%, 0.76% more downticks the prior two weeks, 2.96%, 1.86%, 0.07% more upticks the prior three weeks, 0.98% more downticks the prior week, 0.61%, 0.29%, 1.80% more upticks the prior three weeks, 0.84% more downticks the prior week, 1.02% more upticks the prior week, 0.91%, 0.94%, 1.21% more downticks the prior three weeks, 1.34%, 1.23%, 0.53%, 0.08% more upticks the prior four weeks, 1.14%, 1.57% more downticks the previous two weeks, 0.24% more upticks the prior week, 1.71%, 2.90%, 0.70% more downticks the previous three weeks, 0.74% more upticks the previous week, 2.81%, 2.32% more downticks the previous two weeks, 0.82%, 1.23%, 1.08%, 0.40% more upticks the previous four weeks, 0.57%, 3.28%, 0.45%, 2.16%, 0.76%, 1.13%, 2.39%, 0.19% more downticks the previous eight weeks, 1.07% more upticks the week before that, 2.34%, 3.49%, 3.52%, 2.34%, 1.15% , 0.69%, 0.89%, 1.49%, 0.87%,  2.48% more downticks the previous ten weeks. 1.20%, 1.50% and 0.60% more upticks the three weeks before that.).

The NASDAQ Institutional Money Flow trend has been (past 53 months) 2.0% more downtick blocks than uptick blocks each week on average, but a major trend change occurred in March of 2003 when it turned positive. However, another major trend change occurred the past 67 weeks with substantially negative money flow.

NYSE block trading data reveals very strong net buying during the week ending 1-28 though I don't tally it. Inflows have been very strong for more than two years. 

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

Alternatively or in addition to Mind-it, why not make Joe F. Rocks! your start page. In Internet Explorer under "Tools" select "Internet Options" then select "General" where you can set your start page to http://www.joefrocks.com/ .

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