Joe F. Rocks!
Growth Stock Investor & Market Strategist

Joe F. Rocks! Trade the Cycles Updated 2-19-06

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 short term downcycles as of 2-17-06.)
                                                           - Minor Intermediate Term Cycle (3-6 Weeks) - Untimely (NDX minor intermediate term downcycle 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.

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.

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 122 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 downcycle is in place, because an important 2% minor intermediate term cycle sell signal occurred recently (see first chart below).

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 2-24 (a minor intermediate term downcycle is in place at 2-17-06's close, which is the most important consideration, because a 2% follow through sell signal occurred) with 1.93% (452) more uptick blocks during the week ending 2-17. 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 122 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 2-17 with NASDAQ A/D at more than 8:7 in favor of declining issues and NASDAQ Up/Down Volume was in favor of down volume by more than 12:7.

The NASDAQ wall of worry (VXN (NASDAQ 100 Volatility Index) and QQV (QQQ Volatility Index)) was mixed on Friday 2-17 with VXN revealing that a modest (0.25-0.49%) rise in fear occurred for NDX (NASDAQ 100) but QQV revealed that a very sharp (3-6%) rise in complacency occurred for QQQQ (NASDAQ 100 Tracking Stock). The NASDAQ is deemed Untimely on Tuesday due to the short term as well as minor intermediate term downcycles and QQQQ's very sharp rise in complacency on Friday. Better than expected economic data may result in strength.

Williams %R for NDX is at -48.64 on 2-17-06 (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 sell signal recently (see first chart above). MACD is on a sell signal (below it's moving average). RSI and Stochastics are on buy signals. 

A modest rise in fear occurred for the NASDAQ 100 on Friday with VXN (NASDAQ 100 Volatility Index) rising +0.18 (+1.21%) to 15.11 while NDX (NASDAQ 100) fell -13.40 (-0.79%) to 1675.21 which reveals that a modest (0.25-0.49%) rise in fear occurred for NDX because VXN rose modestly more than NDX fell (NDX wall of worry grew) which portends strength in NDX on Tuesday, but, a short term downcycle is in place at session's end on Friday 2-17. A minor intermediate term downcycle is in effect, because a 2% follow through sell signal occurred. 

A very sharp (3-6%) (-0.79% decline in QQQQ + -3.32% decline in QQV = -4.11% which is a +4.11% rise in complacency) +4.11% rise in complacency occurred for QQQQ (NASDAQ 100 Tracking Stock, -0.33 (-0.79%) to 41.21) on Friday since QQQQ fell significantly while QQV fell very sharply (QQQ Volatility Index, -0.48 (-3.32%) to 13.96) (QQQQ wall of worry shrank substantially) which portends weakness in QQQQ on Tuesday, and, a short term downcycle is in place at session's end on Friday 2-17. A minor intermediate term downcycle is in effect, 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) rose +0.53 (+4.62%) to 12.01 versus a decline in SPX of -2.14 (-0.17%) to 1287.24 which was a very sharp (3-6%) rise in fear (wall of worry grew substantially) for the S & P 500/value stocks (SPX is about 75% value stocks) since VIX rose very sharply versus SPX falling slightly (S & P 500) which portends strength in SPX on Tuesday, but, it's short term upcycle in place at session's end on Friday 2-17 is rolling over. 

The S & P 500 (SPX) is deemed Untimely on Tuesday due to the short term upcycle rolling over and it's very overbought condition. A short term upcycle is in place at Friday 2-17's close which usually would lead to strength/an uptrend on Tuesday if it remains in place, but it's flattening out/rolling over. Better than expected economic data may result in some strength. MACD is on a buy signal (above it's moving average). Stochastics and RSI are on buy signals. Williams %R for SPX is in very overbought territory at -6.22 on 2-17-06 (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 downcycle (2% follow through sell signal occurred).

The CBOE Total Put/Call Ratio at an elevated (at or above 0.75 but below 0.90) level of 0.83 at Friday's close points to some weakness/volatility on Tuesday (the CBOE Index Put/Call Ratio at an extremely high 1.36 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 February 14, 2006), the Speculators (hedge funds and other speculators/traders) sold an unusually large (> 10% decrease in long contracts) 1601 long futures contracts and covered 316 short futures contracts which portends weakness this week (contrarian indicator), because the unusually large long liquidation is a short term non contrarian indication, whereas, the Commercial Traders added 862 long futures contracts and added 803 short futures contracts which is neutral this week (non contrarian indicator). NDX is in a minor intermediate term downcycle, since a 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.) @ 40.2% bullish last week from 40.2% the prior week is a neutral factor for the prospects of stocks during the week ending 2-24-06 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 no change from last week is a neutral factor for the prospects of stocks during the week ending 2-24-06 because it's no change 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 Major Upcycle's Elliot Wave 4 Should Bottom In Mid March   
 

• It appears that Wave 4 (see NEM 1 month chart, second chart) will be a 6 weekish Elliot Wave ABC correction, since NEM's Wave A short term downcycle lasted 9 sessions, from 1-31-06's Wave 3 cycle highs until 2-13-06, and HUI/XAU's lasted 11 sessions, from 1-31-06's Wave 3 cycle highs until 2-15-06. The major upcycle (since 5-16-05) Elliot Wave count (1 year NEM charts have clearest count) correctly indicated that Wave 3 ended on Tuesday 1-31-06. 
  

• "Trade the Cycles" Near Term Synopsis - Monday 2-13 was probably NEM's Wave A short term cycle low (see NEM 1 month chart, second chart) and NOT the beginning of the major upcycle's Wave 5 because HUI/NEM/XAU's cycle lows last week occurred too far above the major upcycle (since 5-16-05) trendlines to be Wave 4 cycle lows (see latest 1 year charts). The major upcycle trendlines could turn up, with HUI/NEM/XAU's Wave 4 cycle lows occurring above the current trendlines, but it's unlikely that they turned up that much. Also, could the considerable excesses of Wave 3 be worked off in only nine sessions for NEM and 11 sessions for HUI/XAU? Very unlikely. Remember that the previous parabolic major upcycle's Wave 4 in 2003 lasted 7 weeks for HUI/XAU and -25%+ declines occurred. It appears that each of Wave 4's three Waves will last about two weeks, for an approximate 6 week correction that began with Wave 3 cycle highs on 1-31-06. So, Wave 5 should begin in mid March, which is when it began in the previous parabolic major upcycle in 2003 (on March 13, 2003). Shortly after NEM fills it's downside gap at 48.75 from 12-7 and the XAU fills it's downside gap at 122.49 from 12-22 Wave 4 should bottom. Based on that and the latest major upcycle trendlines (see latest 1 year charts) my Wave 4 cycle low target ranges are 255-265 for HUI (was 240-250), 47-49 for NEM (was 45-47), and  117-122 for the XAU (was 112-117). This means that the maximum downside in Wave 4 for the more volatile HUI (than NEM/XAU) is about -27%, since HUI peaked very near 350 in Wave 3. It appears that gold will bottom above $500 (see it's 1 year chart). NEM's Wave B short term upcycle began at 53.21 on 2-13 shortly after filling it's downside gap at 53.40 from 1-3-06. The gold Commercial Traders aren't trading aggressively long (added 4848 long futures/options contracts in the week ending 2-14-06) and they shorted 1765 futures/options contracts (week ending 2-14-06), which suggests that Wave 4 hasn't bottomed yet. The major upcycle's (since 5-16-05) Elliot Wave 4 minor intermediate term downcycle began on 1-31-06 (see latest 1 year charts), and, Wave 4 will probably last one to two months with likely declines of -20-30%, in similar fashion to the prior parabolic major upcycle's (the strong part of the prior long term upcycle) Elliot Wave 4 in 2003, where HUI fell -26.59% and the XAU fell -25.11% in seven weeks (see 3 year XAU chart dated 5-16-05). An A, B, C correction is likely during the major upcycle's Wave 4, with Wave B up probably occurring now. Federal Reserve Bank Credit (released after Thursday 2-16's close) rose +6.737 Billion in the week ending 2-15-06 which portends strength for the next few days to a week (see http://www.federalreserve.gov/releases/h41/Current/). Also, the Fed's massive $18.75 Billion in Repos on Thursday 2-16 should add to strength this week. In NEM's 1 year chart dated 2-3-06 note (third chart, very important) the Elliot Wave 1, 2, 3, 4, 5 minor intermediate term upcycle from 5-16-05 until 9-30-05, which is why I believe 9-30-05 was the major upcycle's Elliot Wave 1 cycle high and arrived at the current count, with 1-31's cycle high being the end of the major upcycle's (since 5-16-05) Wave 3 for HUI/NEM/XAU. NEM has downside gaps to fill 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 to fill at 137.38 created at Friday 2-17's open, 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. The Elliot Wave 3 minor int term cycle highs that occurred on 1-31-06 are important though not major/final cycle highs, because the major upcycle's Elliot Wave 5 cycle high probably lies ahead of us and should occur in the 400-450 range for HUI, based on extrapolating the prior long term cycle highs since late 2000 when the Bull Market/very long term upcycle began. Gold hit a 2% follow through minor intermediate term cycle sell signal nine weeks ago.       
  

• "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 July 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.

• The "Trade the Cycles" Blog (see link) is typically updated a few times each day, so in this likely 6 weekish Wave 4 correction, it will provide you with the current "Trade the Cycles" assessment. Some weakness is likely on Tuesday 2-21 because the NEM Lead Indicator was a very bearish -1.11% vs the XAU on Friday 2-17, XAU Implied Volatility fell -6.38% to 34.115 on Friday 2-17 from 36.440 on 2-16 versus a +1.13% rise in the XAU on 2-17, which is a very sharp (3-6%) +5.25% rise in complacency (-6.38% + +1.13% = -5.25%. The XAU wall of worry shrank by -5.25%, therefore complacency rose by +5.25%) that portends weakness/a downtrend during part of Tuesday 2-21's session, and the XAU has a downside gap at 137.38 created at Friday 2-17's open. Wave 4's (since 1-31-06) Wave B short term upcycle is in effect since 2-13 for NEM and since 2-15 for HUI/XAU.

• HUI, NEM, and the XAU are in an Elliot Wave 5 long term upcycle since 5-10-04 (see first chart), which is the third long term upcycle of the first/Elliot Wave 1 cyclical Bull Market of the secular Bull Market/very long term upcycle that began in Oct 2000 (NEM/XAU)/Nov 2000 (HUI). There should be two more cyclical Bull Markets corresponding to Waves 3 and 5 of the secular Bull Market after this one peaks later this year. In the first chart I labeled the first major upcycle a long term upcycle, but it was only a six month major intermediate term upcycle that was the first segment/major upcycle of the long term upcycle that peaked in May 2002. The first cyclical Bear Market/long term downcycle of this secular Bull Market/very long term upcycle (since late 2000), corresponding to the secular Bull's Elliot Wave 2 down, is likely after long term cycle highs occur later this year and will probably last 12-18 months, based on gold/silver stocks such as CDE (Coeur D' Alene Mines), MNG (Miramar Mining), NXG (Northgate Minerals Corp), RGLD (Royal Gold), and SIL (Apex Silver Mines) completing 14-16 month long term downcycles/cyclical Bear Markets in May 2005, that began after their early 2004 long term cycle highs. Their long term downcycles/cyclical Bear Markets all did Elliot Wave A, B, C down up down patterns.
  

• Now for HUI/NEM/XAU's Bull Market/very long term upcycle (since late 2000) Elliot Wave count! The long term cycle high that occurred in mid 2002 appears to be the Wave 1 cycle high (see first chart). The long term cycle high that occurred on Dec 2, 2003 for HUI/NEM/Jan 6, 2004 for the XAU appears to be the Wave 3 cycle high. The long term cycle high that will occur in this long term upcycle later this year will probably be the final Wave 5 cycle high of the first cyclical gold/silver stock Bull Market within a primary/secular very long term Bull Market that may last 15-20 years or more, possibly until the year 2020 and beyond. The previous secular Bear market/very long term downcycle lasted about 21 years, from 1980 until April 2001 for gold. However, the interesting thing is that many gold/silver stocks dramatically lag HUI/NEM/XAU's cycles. CDE, Coeur D' Alene Mines, a silver (with some gold) stock, MNG (Miramar Mining), NXG (Northgate Minerals Corp), RGLD (Royal Gold), and SIL, Apex Silver Mines, hit long term cycle lows in May 2005 about a year after HUI/NEM/XAU did for example. Some silver stocks lag simply because silver's Bull Market lags gold's by about 6 months, since silver bottomed in late 2001 versus April 2001 for gold. With the help of cycles and Elliot Wave there will be many gold/silver stocks that can be invested in or traded after long term cycle highs occur later this year, if their cycles lag dramatically, as CDE, MNG, NXG, RGLD and SIL's do, but one must wait for them to experience major cycle lows of course. CDE, MNG, NXG, RGLD and SIL's long term cycle highs will be Wave 1 cycle highs of their new cyclical Bull Market, because they experienced an Elliot Wave A, B, C down, up, down cyclical 15-16 month Bear Market from their early 2004 long term cycle highs until their May 2005 long term cycle lows. 

• The latest COT data (as of 2-14-06) is bullish short term since the gold Commercial Traders traded net long and the gold Speculators traded net short, both of which portend strength for part of this week, but the short selling by the gold Commercial Traders and the short covering by the gold Speculators points to some significant weakness. The gold Commercial Traders added 4848 (added 4679 the prior week, sold 15,347 the prior week, added 343, 10,554, 13,289, 6357 the prior four weeks,) long futures and options contracts and added 1765 (covered 9233, 18,701, 8435 the prior three weeks, added 11,306, 4626, 3299 the prior three weeks, covered 2036 the prior week) short futures and options contracts which portends strength this week (non contrarian indicator), but the addition of 1765 short futures/options contracts points to some weakness. The gold Speculators (hedge funds and other speculators/traders) sold a large 10,272 (sold 5910 the prior week, added 44 the prior week, sold 6157 the prior week, added 5541, 2975, 1521 the prior three weeks) long futures and options contracts and covered a large 3511 (added 5621, 1047, 1783, 3743, 9445, 5824 the prior six weeks) short futures and options contracts which portends strength this week (contrarian indicator), but the short covering points to some weakness. 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.
  

• 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

• 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 for HUI (-69.20)/NEM (-68.50)/XAU (-75.70) on 2-17-06 (see latest charts). It typically hits an extremely overbought level (near 0) near monthly 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).
  

• 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). The USD appears to be in a Wave B upcycle.              
  

• 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 17.64% (+42% times +42% = 17.64%) of gold's price action/variability now since the USD's correlation coefficient with gold is +42% for the past 180 trading days as of 2-17-06. The USD determines 24.01% of silver's price action/variability since the USD's correlation coefficient with silver is 49% for the past 180 trading days on 2-17-06. 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 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 a recent 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 2005. 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 the previous one (6 months) from 5-10-04 until 11-17-04 and see about twice the gains (100% or more 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 one year or more (now estimated to end July 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. Also, 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 2005, so it led the stocks pricewise but didn't flash a major buy signal until June 2005 (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 2005 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. HUI may rise to about 400-450 in the next 6-9 months. NEM may rise to the 70-75 area in the next 6-9 months. The XAU may rise to about 180-190 in the next 6-9 months.

• 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 +42% on 2-17 (+43% on 2-10) for the past 180 trading days for gold, according to Moore Research Center, Inc. For silver the correlation coefficient with the USD is +49% on 2-17 (+48% on 2-10) 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 17.64% (+42% times +42% = 17.64%) of gold's price action/variability now since the USD's correlation coefficient with gold is +42% for the past 180 trading days as of 2-17-06. The USD determines 24.01% of silver's price action/variability since the USD's correlation coefficient with silver is 49% for the past 180 trading days on 2-17-06. 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 2-17-06: "JFR - Joe F. Rocks's Mutual Fund, Net Asset Value (NAV): $14.08 on 2-17 vs $13.83 on 2-10, Compliant: Yes, This past week return: +1.83%." HUI (AMEX Gold Bugs Index) was up +0.99% last week for comparison, so JFR outperformed HUI in 28 of the past 57 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 40.08% since it's inception on 1-5-05. For the three months ending 2-3-06 my JFR imaginary gold/silver stock fund at Marketocracy (see link) was the 64th best fund. JFR was better than 97.3% of their funds for the past year and was better than 99.4% of their funds for the past six months. I went to about 30% cash near the Wave 3 cycle high, which is near the allowable 35% limit.
  

• XAU Implied Volatility fell -6.38% to 34.115 on Friday 2-17 from 36.440 on 2-16 versus a +1.13% rise in the XAU on 2-17, which is a very sharp (3-6%) +5.25% rise in complacency (-6.38% + +1.13% = -5.25%. The XAU wall of worry shrank by -5.25%, therefore complacency rose by +5.25%) that portends weakness/a downtrend during part of Tuesday 2-21's session (complacency is usually contrarian, therefore normally portends weakness, until it reachs an unusually large level (> 6% increase) where it becomes non contrarian). That weakness/a downtrend could follow a gap up at the open and early strength. 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 1.07156 for the March expiration on 2-17 versus at 1.30761 for the expired February expiration on 2-17 versus at 1.43135 for the February expiration on 2-10 versus at 1.17922 for the expired January expiration on 1-20 versus at 1.10113 for the January expiration on 1-13 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 +2.29% (-2.11%, +0.03%, -0.14%, -4.36%, +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 47 weeks): +0.02% vs +1.13% on 2-17, +2.52% vs +2.31% on 2-16, -0.62% vs -2.42% on 2-15, +1.98% vs +1.86% on 2-14, -1.30% vs -2.57% on 2-13.        

• 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 108,503 long futures and options contracts versus 265,310 short futures and options contracts (data as of 2-14-06). 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 169,316 long futures and options contracts versus only 46,774 short futures and options contracts (data as of 2-14-06).

• The gold Commercial Traders added 4848 (added 4679 the prior week, sold 15,347 the prior week, added 343, 10,554, 13,289, 6357 the prior four weeks,) long futures and options contracts and added 1765 (covered 9233, 18,701, 8435 the prior three weeks, added 11,306, 4626, 3299 the prior three weeks, covered 2036 the prior week) short futures and options contracts which portends strength this week (non contrarian indicator), but the addition of 1765 short futures/options contracts 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 2-14-06, 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) sold a large 10,272 (sold 5910 the prior week, added 44 the prior week, sold 6157 the prior week, added 5541, 2975, 1521 the prior three weeks) long futures and options contracts and covered a large 3511 (added 5621, 1047, 1783, 3743, 9445, 5824 the prior six weeks) short futures and options contracts which portends strength this week (contrarian indicator). 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 33,678 long futures and options contracts versus 104,083 short futures and options contracts as of 2-14-06. 

• The notoriously contrarian (in terms of their trading activity) silver Speculators are correctly positioned for silver strength with 54,086 long futures and options contracts versus only 7154 short futures and options contracts as of 2-14-06.

• The silver Commercial Traders added 2313 (sold 2508 the prior week, added 1291 the prior week, sold 1760 the prior week, added 10 the prior week, sold 1188 the prior week) long futures and options contracts and covered 723 (covered 4837, 1269 the prior week, 4158 the prior two weeks, added 413 the prior week, covered 1239 the prior week) short futures and options contracts which portends strength this week (non contrarian indicator). The most important consideration in timing any market is the cycle channels/trendlines.

• The silver Speculators (hedge funds and other speculators/traders) sold 4298 (sold 4051, 291 the prior two weeks, added 2413 the prior week, sold 350, 1735, 2219 the prior three weeks, added 1565 the prior week) long futures and options contracts and covered 1767 (covered 9 the prior week, added 2570, 1465, 150 the prior three weeks, covered 1376, 1031 the prior two weeks) short futures and options contracts which portends strength this week (contrarian indicator). 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 (massively net short) with 9795 long futures and options contracts versus 22,122 short futures and options contracts as of 2-14-06. Last week they sold an unusually large (> 10% decrease in long contracts) 2011 (sold 1320, 978 the prior two weeks, added 2134, 1893, 1148, 1525 the prior four weeks) long futures and options contracts and added an unusually large (> 10% increase in short contracts) 4614 (added 1966 the prior week, covered 20 the prior week, added 395, 951 the prior two weeks, covered 5422 the prior week) short futures and options contracts which portends strength this week (non contrarian indicator), because the unusually large net short increase is a short term contrarian indication. 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 (massively net long) with 15,269 long futures and options contracts versus 3082 short futures and options contracts as of 2-14-06. Last week they added an unusually large (> 10% increase in long contracts) 4207 (added 213, 408, 343 the prior three weeks, sold 82, 4033 the prior two weeks, added 959 the prior week, sold 309, 7347, 1970 the prior three weeks) long futures and options contracts and covered an unusually large (> 10% decrease in short contracts) 1928 (covered 1668 the prior week, added 129, 1206, 126, 1657, 1459 the prior five weeks, covered 690, 653 the prior two weeks) short futures and options contracts which portends USD strength this week (contrarian indicator), because the unusually large net long increase is a short term non contrarian indication. The most important consideration in timing any market is the cycle channels/trendlines (see chart above).
  

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

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

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

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

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

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