Joe F. Rocks!
Growth Stock Investor & Market Strategist

Joe F. Rocks! Trade the Cycles Updated 6-4-06

Growth Stock (NASDAQ) Timeliness - Monday - Untimely (Weakness/a downtrend, that could follow a gap up at the open and early strength, during "much" of Monday's session is a "hit!.")
                                                           - Short Term Cycle (3-10 Days) - Untimely (NDX/QQQ are in the monthly upcycle's Wave 4 down as of 6-2-06.)
                                                           - Minor Intermediate Term Cycle (about 10-14 Weeks) - Timely (NDX minor intermediate term upcycle as of 6-2-06.)

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 down) = Long term cycle high occurred at 171.71 on 5-11-06. Began May 10, 2004 at 76.79 long term cycle low.

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 down) = Long term cycle high occurred at 401.69 on 5-11-06. Began May 10, 2004 at 163.81 long term cycle low.

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

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The long term downcycle trendlines for NDX (NASDAQ 100) and SPX (S & P 500) were broken during the week ending 11-5-04, and unexciting (because of the very long term downcycle since March 2000) long term cycle buy signals occurred shortly thereafter (see second chart). Long term cycle lows occurred at 1301.93 on 8-13-04 for NDX and at 1060.72 for SPX. NDX and SPX are 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 17 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 137 weeks ago to negative/outflows correctly portended a trend change. Given last week's positive NASDAQ Institutional Money Flow, some strength is indicated this week, but cycle channels/trendlines are the primary market timing consideration. A minor intermediate term upcycle is in place, a 2% minor intermediate term cycle buy signal is imminent (see first chart below). See the first chart below. NDX experienced a multi month Elliot Wave ABC correction that appears to have ended.

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 6-9 (a minor intermediate term upcycle is probably in place at 6-2-06's close, which is the most important consideration) with 4.10% (691) more uptick blocks during the week ending 6-2. 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 137 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 mixed on Friday 6-2 with NASDAQ A/D at more than 15:14 in favor of advancing issues but NASDAQ Up/Down Volume was in favor of down volume by more than 11:7.

The NASDAQ wall of worry (VXN (NASDAQ 100 Volatility Index) and QQV (QQQ Volatility Index)) shrank on Friday 6-2 with VXN revealing that a sharp (2-2.99%) rise in complacency occurred for NDX (NASDAQ 100) and QQV revealed that a sharp (2-2.99%) rise in complacency occurred for QQQQ (NASDAQ 100 Tracking Stock). The NASDAQ is deemed Untimely on Monday due NDX's sharp rise in complacency and the monthly upcycle's Wave 4 down is in effect. Better than expected economic data may result in strength.

Williams %R for NDX is in overbought territory (above -20) at -18.72 on 6-2-06 (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 (see top chart in group above), but the Elliot Wave ABC correction appears to have bottomed and a 2% buy signal appears imminent. MACD is on a buy signal (above it's moving average). RSI and Stochastics are on buy signals. 

A sharp rise in complacency occurred for the NASDAQ 100 on Friday with VXN (NASDAQ 100 Volatility Index) falling -0.48 (-2.55%) to 18.38 while NDX (NASDAQ 100) fell -3.67 (-0.23%) to 1612.90 which reveals that a sharp (2-2.99%) rise in complacency occurred for NDX because VXN fell sharply despite NDX falling slightly (NDX wall of worry shrank) which portends weakness in NDX on Monday. A minor intermediate term upcycle is probably in effect. A monthly upcycle Wave 4 down is in effect. Risk is high because NDX's Cyclical Bull Market since October 2002 is rolling over/flattening out. 

A sharp (2-2.99%) (-0.25% decline in QQQQ + -1.91% decline in QQV = -2.16% which is a +2.16% rise in complacency) +2.16% rise in complacency occurred for QQQQ (NASDAQ 100 Tracking Stock, -0.098 (-0.25%) to 39.642) on Friday since QQQQ fell modestly while QQV fell significantly (QQQ Volatility Index, -0.33 (-1.91%) to 16.95) (QQQQ wall of worry shrank) which portends weakness in QQQQ on Monday. A minor intermediate term upcycle is probably in effect. A monthly upcycle Wave 4 down is in effect. Risk is high because NDX's Cyclical Bull Market since October 2002 is rolling over/flattening out.

On Friday VIX (which is now calculated using the implied volatility of SPX (S & P 500) options instead of OEX (S & P 100) options) fell -0.20 (-1.38%) to 14.32 versus a rise in SPX of +2.51 (+0.20%) to 1288.22 which was a significant (0.50-1.99%) rise in complacency (wall of worry shrank) for the S & P 500/value stocks (SPX is about 75% value stocks) since VIX fell significantly versus SPX rising slightly (S & P 500) which portends weakness in SPX on Monday. A monthly upcycle Wave 4 down is in effect. Risk is high because SPX's Cyclical Bull Market since October 2002 is rolling over/flattening out.

The S & P 500 (SPX) is deemed Untimely on Monday due to the significant rise in complacency on 6-2 and a monthly upcycle Wave 4 down is in effect which usually would lead to weakness/a downtrend on Monday if it remains in place. 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 -7.57 on 6-2-06 (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 probably in a minor intermediate term upcycle (2% follow through buy signal appears imminent).

The CBOE Total Put/Call Ratio at an extremely high (at or above 1.25) level = 1.26 at Friday's close points to weakness/volatility on Monday due to the extreme level of fear (the CBOE Index Put/Call Ratio at an extremely high 2.08 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 May 30, 2006), the Speculators (hedge funds and other speculators/traders) sold an unusually large (> 10% decrease in long contracts) 1359 long futures contracts and covered 310 short futures contracts which portends weakness this week (contrarian indicator), because the unusually large long liquidation is a short term non contrarian indication, and the short covering also points to weakness, whereas, the Commercial Traders sold 424 long futures contracts and added 1577 short futures contracts which portends weakness this week (non contrarian indicator). Keep in mind that the data is three days old when released. NDX is probably in a minor intermediate term upcycle, a 2% follow through buy signal appears imminent. 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.) @ 30.8% bullish last week from 33.0% the prior week is a negative factor for the prospects of stocks during the week ending 6-9-06 because it's at a low level of bullishness (between 30-40%). The change in or delta AAII % bullish is also a useful short term/weekly look ahead indicator in addition to the absolute value of AAII % bullish. The sharp decline last week is a negative factor for the prospects of stocks during the week ending 6-9-06 because it's a sharp rise in fear for this useful non-contrarian sentiment indicator, but some of the weakness probably occurred last week because this data is released on Wednesday. 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 - A Wave 2 Cyclical Bear Market Within A Secular Bull Market
 

• Elliot Wave (see 15 month charts) and the 5% follow through major intermediate term cycle sell signal suggest that the major upcycle since 5-16-05 for HUI/NEM/XAU has ended, and, Elliot Wave suggests that the long term upcycle since 5-10-04 and the Cyclical Bull Market since late 2000 for HUI/NEM/XAU (Elliot Wave 1 of the Secular Bull Market) have ended (see second chart). Also, the fact that reliable lead indicator NEM (see 15 month chart and the last chart in first chart group) peaked (on 1-31-06) nearly three and a half months before HUI/XAU did (on 5-11-06) is a strong indication that a Cyclical Bear Market has begun for HUI, NEM, and the XAU, that corresponds to Elliot Wave 2 down of the Secular Bull Market/very long term upcycle that began in late 2000 (see second chart). The long term upcycle since 5-10-04 was probably Elliot Wave 5 of the Cyclical Bull Market since late 2000 (see second chart). Keep in mind that the metals usually lag at major cycle highs and may not peak for a few more months, possibly not until the end of the year given the importance of Cyclical Bull Market cycle highs. Also, many gold/silver stocks' cycles are out of sync with HUI, NEM, and the XAU's, so there should be many great investing and trading opportunities if a Cyclical Bear Market has begun for HUI, NEM, and the XAU.
  

• "Trade the Cycles" Near Term Synopsis - HUI and the XAU are in Wave B up of an Elliot Wave ABC downcycle that is Wave A down of the 18-24 month Wave 2 Cyclical Bear Market that began on 5-11-06 (see 15 month charts). See NEM's 15 month chart for it's Elliot Wave count. If you doubt that a Cyclical Bear Market is in effect for HUI/NEM/XAU (Wave 2 down of the Secular Bull Market since late 2000) look at the 2 year NEM Lead Indicator chart (last chart in first chart group), note that the US Dollar (USD) has put in or is putting in a major cycle low (see 2 year chart), and see the second chart for the Elliot Wave count of the Secular Bull Market since late 2000. Also, the S & P 500's (SPX) Cyclical Bull Market since October 2002 is rolling over and may have recently peaked. SPX drives index fund trading which profoundly affects many if not most indexes and their components, including HUI, NEM, and the XAU. NEM and FCX are components of SPX. Notice how closely SPX's and NEM's upcycles and downcycles correspond (see link), with SPX's usually leading NEM's. If you've followed my work for a while you know how reliable a lead indicator NEM is (see last chart in first chart group), and, SPX may be even better. The XAU's Secular Bull Market/very long term upcycle trendline (see second chart) is at 80ish right now. In 18-24 months from 5-11-06 it'll be at 95-100, so 95-100 is a reasonable target range for the Cyclical Bear Market's cycle low probably in late 2007 or 2008. One can't rule out a short 12-15 month Cyclical Bear Market. Once HUI, NEM, and the XAU bounce at their Secular Bull Market/very long term upcycle trendlines in the next 18 months or so and hit 5% follow through major buy signals then a new Cyclical Bull Market corresponding to the Secular Bull Market's Wave 3 up will probably have begun. The major upcycle's (from 5-16-05 until 5-11-06) Elliot Wave 5 cycle high occurred at 401.69 for HUI on 5-11-06, which was in the expected 400-450+ range (see 15 month HUI chart). The NEM Lead Indicator was a bullish +1.21% vs the XAU last week. The gold Commercial Traders traded net long for the 5 days ending 5-30-06, which portends strength this week (see bullet just before the charts), but the long liquidation points to some weakness. Federal Reserve Bank Credit (see http://www.federalreserve.gov/releases/h41/Current/) rose a substantial +$4.139 Billion in the week ending 5-31-06, which portends strength this week. The Fed's massive $16.000 Billion in Repos on Thursday 6-1 (see http://www.newyorkfed.org/markets/omo/dmm/temp.cfm?SHOWMORE=TRUE) also should aid a likely rally this week. The XAU has downside gaps at 141.69 from 6-2 (may get filled on Monday 6-5), and, at 135.54 from 5-25 and 130.03 from 3-24 that shouldn't get filled until Wave C. NEM has downside gaps at 51.67 from 6-2 and at 49.53 from 5-25. HUI has no gaps to fill according to Yahoo's historical data. Often cycle highs or lows will occur shortly after gaps get filled, so one needs to track gaps closely. Gold hit a 2% minor intermediate term cycle sell signal (see 2 year chart).
  

• "Trade the Cycles" Big Picture Synopsis - The most important market timing consideration, therefore the most important thing to remember, is that HUI and the XAU are probably in the first Cyclical Bear Market since May 11, 2006 (NEM since 1-31-06) of the secular Bull Market/very long term upcycle since late 2000, and, this Cyclical Bear Market should last about 18-24 months. Secular Bull/Bear Markets last 17-18 years on average. Gold's previous Secular Bear Market lasted from 1980 until April 2001. So, this Secular Bull Market for HUI/NEM/XAU that began in late 2000 is likely to be comprised of three Cyclical Bull Markets corresponding to Waves 1 (ended 5-11-06 for HUI/XAU), 3, and 5 and two Cyclical Bear Markets corresponding to Waves 2 (began 5-11-06 for HUI/XAU) and 4. Gold began a very long term upcycle/true Bull Market in April 2001 and silver did so in late 2001. Elliot Wave Theory (see 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 and will provide you with the current "Trade the Cycles" assessment. HUI's major upcycle (since 5-16-05) Wave 5 cycle high, that should also be a Cyclical Bull Market cycle high (see second chart) for the first of three Cyclical Bull Markets (3 Elliot Wave upcycles and 2 downcycles/Cyclical Bear Markets) in this Secular gold/silver stock Bull Market that began in late 2000 (see second chart), appears to have occurred at 401.69 on 5-11-06, and fell within the expected 400-450+ range. I've identified many stocks (dozens) that have (probably) recently begun or are in the middle of 3-6 year Cyclical Bull Markets, because they recently completed 18 monthish Cyclical Bear Markets. There should be many great money making opportunities in gold/silver stocks assuming that HUI/NEM/XAU have begun an 18 monthish Cyclical Bear Market (see second chart). I'll create a web page containing this list and link it to my home page.

• Trade the Cycles lite is the cycle trendlines in the annotated charts, since cycle trendlines are the primary market timing consideration, with Elliot Wave and gaps also being very important. The detailed analysis of indicators and data is finetuning intended more for traders and sophisticated/experienced investors. Investors can simply view the cycle trendlines in the charts (with the Elliot Wave count) for a weekly update. Cycle trendlines (primary consideration) in concert with gaps and Elliot Wave are the crux of my "Trade the Cycles" system.

• The latest COT data (as of 5-30-06) is short term bullish since the gold Commercial Traders traded net long and the gold Speculators traded net short, which portends strength, but, the long liquidation by the gold Commercial Traders and the short covering by the gold Speculators points to some weakness. The gold Commercial Traders sold 6497 long futures and options contracts and covered 9482 short futures and options contracts which portends strength this week (non contrarian indicator), but the long liquidation points to some weakness. The gold Speculators (hedge funds and other speculators/traders) sold 6930 long futures and options contracts and covered 3565 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 charts below).

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

• The cycle types are Secular Bull or Bear Market/very long term up or downcycle, Cyclical Bull or Bear Market, long term up or downcycle, major intermediate term up or downcycle, minor intermediate term up or downcycle, monthly up or downcycle, short term up or downcycle, and very short term up or downcycle. Each upcycle is nearly always comprised of five Elliot Waves contained in a few of the next shorter cycles' cycles and each downcycle is nearly always comprised of three Elliot Waves contained in a few of the next shorter cycles' cycles. Each cycle is comprised of an up and down cycle of course, so really the complete cycles are very long term cycle (about 35 years up and down), cyclical Bull/Bear cycle (about 7 years), long term cycle (about 2 years), major intermediate term cycle (about 6-12 months), minor intermediate term cycle (a few months), monthly cycle (1-2 months), short term cycle (2-3 weeks), and very short term cycle (a few days to a week).

• As discussed in recent months Elliot Wave (see second chart) suggests that HUI/NEM/XAU are due for an 18-24 month Cyclical Bear Market that appears to have begun on 5-11-06 (1-31-06 for NEM), because this was the third long term upcycle or fifth Elliot Wave of the first Wave 1 Cyclical Bull Market of the Secular Bull Market that began in late 2000. HUI/NEM/XAU were due timewise for a Cyclical Bear Market since very long term upcycles (and downcycles) last about 17-18 years on average and HUI/NEM/XAU will have been about 5.5 years into this very long term upcycle when Elliot Wave 5 long term and Elliot Wave 1 Cyclical Bull Market cycle highs occurred, since the Secular Bull Market/very long term upcycle began in October 2000 for NEM/XAU and in November 2000 for HUI. Notice in the second chart how far the XAU is above it's Secular Bull Market/very long term upcycle trendline. The Cyclical Bear Market will "simply" (painful yes) bring HUI/NEM/XAU back to their Secular Bull Market trendlines, which could turn up some, so they may bottom in a few years above where those trendlines would be based on the current trendlines. Many and probably most Junior gold/silver stocks and some non Juniors should run mightily in HUI/NEM/XAU's Cyclical Bear Market due to begin once long term cycle highs occur later this year, because many (probably most) Junior gold/silver stocks' cycles dramatically lag those of HUI/NEM/XAU's. So, there should be a lot of money to be made during HUI/NEM/XAU's Cyclical Bear Market.
  

• HUI, NEM, and the XAU were in an Elliot Wave 5 long term upcycle since 5-10-04 (see first chart above), which was 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. 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, has probably begun and will probably last 18-24 months.
  

• 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 (-48.87)/NEM (-27.15)/XAU (-47.84) on 6-2-06 (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).

• The USD put in a major intermediate term cycle high in mid November 2005 and may have recently put in a major intermediate term cycle low (see chart above).               
  

• 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 50.41% (-71% times -71% = 25.00%) of gold's price action/variability now since the USD's correlation coefficient with gold is -71% for the past 180 trading days as of 6-2-06. The USD determines 40.96% of silver's price action/variability since the USD's correlation coefficient with silver is -64% for the past 180 trading days on 6-2-06. 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. 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.
  

• 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 previous long term upcycle's (May 10, 2004 until 5-11-06) 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). 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.

• 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).
  

• 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).
  

• 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 -71% on 6-2 (-50% on 5-19) for the past 180 trading days for gold, according to Moore Research Center, Inc. For silver the correlation coefficient with the USD is -64% on 6-2 (-46% on 5-19) 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 50.41% (-71% times -71% = 25.00%) of gold's price action/variability now since the USD's correlation coefficient with gold is -71% for the past 180 trading days as of 6-2-06. The USD determines 40.96% of silver's price action/variability since the USD's correlation coefficient with silver is -64% for the past 180 trading days on 6-2-06. 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 6-2-06: "JFR - Joe F. Rocks's Mutual Fund, Net Asset Value (NAV): $15.71 on 6-2 vs $13.75 on 5-19, Compliant: Yes, This past week return: +1.14%." My imaginary mutual fund JFR is up 57.10% 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.
  

• XAU Implied Volatility fell -4.05% to 40.190 on Friday 6-2 from 41.885 on 6-1 versus a +1.38% rise in the XAU on 6-2, which is a sharp (2-2.99%) +2.67% rise in complacency (-4.05% + +1.38% = -2.67%. The XAU wall of worry shrank by -2.67%, therefore complacency rose by +2.67%) that portends weakness/a downtrend during part of Monday 6-5'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, cyclical Bull/Bear, long term, major intermediate term, minor intermediate term, short term, and very short term).

• The XAU Put/Call Ratio is at 0.92969 for the June expiration on 6-2 versus is at 0.89121 for the June expiration on 5-26 versus at 1.55293 for the May expiration on 5-5 versus at 1.52366 for the May expiration on 4-28 versus at 1.10287 for the April expiration on 4-13 versus at 0.95164 for the April expiration on 4-7 versus at 0.84112 for the April expiration on 3-31 versus at 0.64172 for the April expiration on 3-24 versus at 0.75672 for the final March expiration on 3-17 versus at 0.73200 for the March expiration on 3-10 versus at 0.78629 for the March expiration on 3-3 versus 0.92033 for the March expiration on 2-24 versus 1.07156 for the March expiration on 2-17 versus 1.30761 for the expired February expiration on 2-17 versus 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 some 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 +1.21% (+0.54%, +3.06%, +1.28%, -5.09%, -0.44%, +2.42%, +1.24, -1.02%, -1.22%, -2.06%, -1.30%, -1.06%, -6.12%, +2.12%, +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 60 weeks): +3.16% vs +1.38% on 6-2, -0.92% vs -0.64% on 6-1, +1.46% vs +1.54% on 5-31, -1.72% vs -1.51% on 5-30.      

• 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 111,460 long futures and options contracts versus 253,157 short futures and options contracts (data as of 5-30-06). 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 130,604 long futures and options contracts versus only 30,373 short futures and options contracts (data as of 5-30-06).

• The gold Commercial Traders sold 6497 long futures and options contracts and covered 9482 short futures and options contracts which portends strength this week (non contrarian indicator), but the long liquidation 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 5-30-06, 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 6930 long futures and options contracts and covered 3565 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 32,894 long futures and options contracts versus 82,369 short futures and options contracts as of 5-30-06. 

• The notoriously contrarian (in terms of their trading activity) silver Speculators are correctly positioned for silver strength with 33,307 long futures and options contracts versus only 8391 short futures and options contracts as of 5-30-06.

• The silver Commercial Traders sold an unusually large (> 10% decrease in long contracts) 4661 long futures and options contracts and covered 2458 short futures and options contracts which portends strength this week (non contrarian indicator), because the unusually large long liquidation is a short term contrarian indication, and the short covering also points to strength. The most important consideration in timing any market is the cycle channels/trendlines.

• The silver Speculators (hedge funds and other speculators/traders) added 677 long futures and options contracts and covered 648 short futures and options contracts which portends weakness this week (contrarian indicator), but most of the weakness may have occurred last week because the data is three days old when released. 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 strength (net long) with 26,988 long futures and options contracts versus 15,394 short futures and options contracts as of 5-30-06. Last week they added 1600 long futures and options contracts and covered 186 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 (see chart above).
  

• The notoriously contrarian (in terms of their trading activity) USD Speculators are positioned for US Dollar weakness (net short) with 10,576 long futures and options contracts versus 19,049 short futures and options contracts as of 5-30-06. Last week they sold 32 long futures and options contracts and added an unusually large (> 10% increase in short contracts) 1801 short futures and options contracts which portends USD weakness this week (contrarian indicator), because the unusually large short selling is a short term non contrarian indication, but most of the weakness may have occurred last week because the data is three days old when released. 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).

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

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

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

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

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

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

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