Joe F. Rocks!
Growth Stock Investor & Market Strategist

Joe F. Rocks! Trade the Cycles Updated 8-7-05

Growth Stock (NASDAQ) Timeliness - Monday - Timely but Risky (Strength/an uptrend, that could follow a gap down at the open, during "much" of Monday's session is a "hit!.")
                                                           - Very Short Term (2-3 Days) - Untimely (NDX/QQQ are probably in short intermediate term downcycles, but 2% follow through is required for a sell signal.)
                                                           - Short Term (1-3 Weeks) - Untimely (NDX short intermediate term cycle probably turned down.)

Brief Cycles Summary (Analysis/Commentary follows)

NASDAQ 100 Very Long Term Downcycle/Secular Bear Market = Down since March 24, 2000 Bull Market peak/very long term cycle high at 4816.35.

NASDAQ 100 Long Term Cycle = Up since long term cycle low at 1301.93 on 8-13-04.

S & P 500 Very Long Term Downcycle/Secular Bear Market = Down since March 24, 2000 Bull Market peak/very long term cycle high at 1552.87.

S & P 500 Long Term Cycle = Up since 8-13-04 long term cycle low at 1060.72. SPX is working it's way up to the very long term downcycle trendline.

XAU (Philadelphia Gold/Silver Index) Very Long Term Upcycle/Secular Bull Market = Began October 25, 2000 at 41.61 Bear Market/very long term cycle low.

XAU (Philadelphia Gold/Silver Index) Long Term Cycle (heading up) = Began May 10, 2004 at 76.79 long term cycle low. Long term cycle high occurred at 113.41 on 1-6-04.

HUI (AMEX Gold Bugs Index) Very Long Term Upcycle/Secular Bull Market = Began on November 15, 2000 at 35.31 Bear Market/very long term cycle low. 

HUI (AMEX Gold Bugs Index) Long Term Cycle (heading up) = Began May 10, 2004 at 163.81 long term cycle low. Long term cycle high occurred at 258.60 on 12-2-03.

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

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

Analysis/Commentary -

The NASDAQ Composite (COMPX) opened slightly lower on Friday 8-5, and, COMPX trended lower most of the session, spent most of the session in negative territory, and closed significantly lower at 2177.91, -13.41 (-0.61%).

The long term downcycle trendlines for NDX (NASDAQ 100) and SPX (S & P 500) were broken during the week ending 11-5-04, so (unexciting because of the very long term downcycle since March 2000) long term cycle buy signals occurred. Long term cycle lows occurred at 1301.93 on 8-13-04 for NDX and at 1060.72 for SPX. NDX and SPX both remain in very long term downcycles since March 2000 (see SPX chart dated 11-16-04).

"Eerie Nikkei-SPX Parallels" (At Zeal) shows the high degree of correlation between the S & P 500's and NASDAQ's post bubble behavior and that of the Japanese stock market that experienced a bubble in 1989 and remains at much lower levels 15 years later.

As one can see in the NDX (NASDAQ 100) charts below, a long term (1 to 3 years) cycle high occurred on 1-20-04 at 1559.47 and a long term cycle low occurred at 1301.93 on 8-13-04. The collapse of the wall of worry from late November 2003 until late January 2004 and the dramatic trend change in NASDAQ Institutional Money Flow 94 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 short intermediate term downcycle is probably in place (sell signal requires 2% follow through).

The very long term downcycle (3-10+ years in duration) which began in March 2000 probably has about 13 years to go. Paper assets (and hard assets in reverse fashion) tend to have very long term cycles that last about 35 years with about 17.5 years up (1982-2000) and 17.5 years down (2000-2018ish). There were very long term cycle highs (paper asset bubbles) in 1897, 1929, 1965ish, and in 2000 (about 35 years apart on average).

Risky NDX long term cycle buy signal because of the very long term downcycle since March 2000 and outflows nearly every week the past 94 weeks. A major intermediate term cycle buy signal is in effect for NDX (and SPX) and a short intermediate term downcycle is probably in place (sell signal requires 2% follow through).

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 intermediate term cycle agrees with it) strength this week ending 8-12 (a short intermediate term downcycle is probably in place as of 8-5-05 (sell signal requires 2% follow through), which is the most important consideration) with 1.30% (264) more uptick blocks during the week ending 8-5. 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 94 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 8-5 with NASDAQ A/D at more than 2:1 in favor of declining issues and NASDAQ Up/Down Volume was in favor of down volume by more than 2:1.

The NASDAQ wall of worry (VXN (NASDAQ 100 Volatility Index) and QQV (QQQ Volatility Index)) grew on Friday 8-5 with VXN revealing that a sharp (2-2.99%) rise in fear occurred for NDX (NASDAQ 100) and QQV revealed that a modest (0.25-0.49%) rise in fear occurred for QQQQ (NASDAQ 100 Tracking Stock). The NASDAQ is deemed Timely but Risky on Monday. A short term upcycle might be in place at Friday 8-5's close that may lead to strength/an uptrend if it remains in place, but the short intermediate term cycle probably turned down last week (sell signal requires 2% follow through). Worse than expected economic data may result in weakness.

Williams %R for NDX is at -72.81 on 8-5-05 (below -80 (near the bottom) on my chart is the (look to) "buy" area (oversold) and above -20 is the look to "sell" area (overbought)). NDX is on a major intermediate term cycle buy signal (5% follow through after breaking it's intermediate term downcycle trendline, see the first chart in the group above). NDX is probably in a short intermediate term downcycle (sell signal requires 2% follow through). MACD is on a sell signal (below it's moving average). RSI and Stochastics are on sell signals. 

A sharp (2-2.99%) rise in fear occurred for the NASDAQ 100 on Friday with VXN (NASDAQ 100 Volatility Index) rising +0.46 (+3.08%) to 15.40 while NDX (NASDAQ 100) fell -7.15 (-0.44%) to 1601.59 which reveals that a sharp (2-2.99%) rise in fear occurred for NDX because VXN rose very sharply while NDX fell modestly (NDX wall of worry rose) which portends strength in NDX on Monday, and, a short term upcycle might be in place at session's end on Friday 8-5. 

A modest (0.25-0.49%) (-0.49% decline in QQQQ + +0.92% rise in QQV = +0.43% which is a 0.43% rise in fear) 0.43% rise in fear occurred for QQQQ (NASDAQ 100 Tracking Stock, -0.19 (-0.49%) to 39.48) on Friday since QQQQ fell modestly while QQV rose significantly (QQQ Volatility Index, +0.13 (+0.92%) to 14.22) (QQQQ wall of worry grew) which portends strength in QQQQ on Monday, and, a short term upcycle might be in place at session's end on Friday 8-5. 

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 -0.04 (-0.32%) to 12.48 versus a decline in SPX of -9.44 (-0.76%) to 1226.42 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 modestly while SPX fell significantly (S & P 500) which portends weakness in SPX on Monday, but, a short term upcycle might be in place at session's end on Friday 8-5, but the short intermediate term cycle appears to have turned down late last week (sell signal requires 2% follow through). 

The S & P 500 (SPX) is deemed Untimely on Monday. A short term upcycle might be in place at Friday 8-5's close which may lead to strength/an uptrend on Monday if it remains in place. Better than expected economic data may result in some strength. MACD is on a sell signal (below it's moving average). Stochastics and RSI are on sell signals. Williams %R for SPX is in oversold territory at -91.87 on 8-5-05 (below -80 (near the bottom) on my chart is the (look to) "buy" area (oversold) and above -20 is the look to "sell" area (overbought)). SPX is on a major intermediate term cycle buy signal (5% follow through after breaking it's intermediate term downcycle trendline). SPX is probably in a short intermediate term downcycle since August  4 or 5 (sell signal requires 2% follow through).

The CBOE Total Put/Call Ratio at an extremely high (at or above 1.05) level of 1.15 at Friday's close points to weakness/volatility (could be followed by strength or could get strength followed by weakness, i.e. volatility is the key word) on Monday (the CBOE Index Put/Call Ratio at an extremely high 2.77 points to weakness/volatility) because it's a reliable non-contrarian indicator of the next session's early action except at extremely high (at or above 1.05) or extremely low levels (at or below 0.50) where it sometimes is also a contrarian indicator (sometimes portends early substantial strength (below 0.50) or a sharp rally following early potentially severe weakness (at or above 1.05), judgement is involved). Please keep in mind that cycle channels/trendlines are the most important consideration when timing any market.

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

Looking at NASDAQ 100 (NDX) Chicago Mercantile Exchange Commitments of Traders - Futures Only (Reportable Positions as of August 2, 2005), the Speculators (hedge funds and other speculators/traders) sold 172 long futures contracts and covered an unusually large (> 10% decrease in short position) 1065 short futures contracts which portends strength this week (contrarian indicator), because the unusually large degree of short covering makes them short term non contrarian, whereas the Commercial Traders added 513 long futures contracts and added 178 short futures contracts which portends modest strength this week (non contrarian indicator), but the addition of 178 short futures contracts points to some weakness. 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.) @ 47.8% bullish last week from 57.5% the prior week is a neutral factor for the prospects of stocks during the week ending 8-12-05 because it's at a mid range level of bullishness (between 40-60%). The change in or delta AAII % bullish is also a useful short term/weekly look ahead indicator in addition to the absolute value of AAII % bullish. The very sharp decline last week is a negative factor for the prospects of stocks during the week ending 8-12-05 because it's a very sharp rise in fear for this useful non-contrarian sentiment indicator contrarian. For now I'm using delta AAII % Bullish as a non contrarian indicator and I haven't determined exactly what significant changes are versus sharp or very sharp, etc. Since it appears to be strictly non contrarian (so far), I don't have to determine what an unusually large change is where the indicator becomes contrarian. The absolute value does become contrarian at extremely low (0-30% bullish) or extremely high (70-100% bullish) values, at least from an intermediate term cycle standpoint (a few weeks/months).

Gold & Silver Stocks - HUI, NEM, and the XAU's Major Breakout Led To A Short Covering Stampede

• Reliable lead indicator Newmont Mining (NEM) had over 8 million shares traded during Wednesday August 3's major breakout (see 2 year charts) and outperformed the XAU by a wide margin of +1.30% (+5.32% vs +4.02% for the XAU), which is a great sign. The fact that HUI, NEM, and the XAU broke their downtrend lines since 11-17-04 led to a massive short covering panic.
  

• When NEM rises +5.32% in a single session (August 3) on slightly over 8 million shares, well above it's average daily volume of 4.50 million shares, that's a very bullish omen as is the fact that it outperformed the XAU by +1.30% that day. NEM is leading to the upside as one would expect.
  

• The straight (classical technical analysis) trendline buy signals (see 2 year charts) confirm the parabolic shaped trendline buy signals that occurred in late May/early June (see 1 year HUI chart dated 6-3-05 below). Now there is basically zero doubt (or as close as one can get in the real world) that May 16, 2005's cycle lows for HUI, NEM, and the XAU are major intermediate term cycle lows and that a long term upcycle began on May 10, 2004. There was very little doubt anyway based on backtesting (first chart below and the fact that the new major buy signal requirements would have weeded out all six false cycle lows during the major correction from 11-17-04 until 5-16-05), the fact that the XAU bounced right at it's Bull Market/very long term upcycle trendline on May 16, 2005 (see 5 year chart dated 7-12-05 below), and the many confidence factors discussed in previous updates (that appear later in this update for reference purposes and first time readers). 

• Cycle parabolic/roundish trendlines provide a huge time advantage over straight trendlines (classical technical analysis). In the first chart below one can see that HUI bottomed on May 10, 2004 in a similar fashion to what occurred in the prior long term cycles. Therefore, there's been an uptrend/long term upcycle since May 10, 2004 that's now (since May 16, 2005) entered it's sharply rising phase.
  

• Following HUI, NEM, and the XAU's major breakout last week they corrected toward the breakout point in typical fashion. Spike moves tend to retrace about 50% of their moves when then correct (in upcycles, more in downcycles). So, the late week decline made perfect sense.                 
  

• Short term cycle lows may have occurred near session's end on Friday 8-5 (HUI, NEM, and the XAU). In HUI's 5 day chart below one can see that a trend change/bullish intraday MACD crossover occurred late in the session and that intraday momentum revealed by stochastics and William's %R was very high. Also, the intraday NEM Lead Indicator was bullish with NEM outperforming the XAU during nearly all Friday 8-5's session, but NEM began to underperform during the late session uptrend. Early strength followed by weakness appears likely on Monday 8-8. XAU Implied Volatility indicates that weakness/a downtrend is likely during much of Monday 8-5's session, which could follow a gap up and/or early strength. XAU Implied Volatility fell -1.32% to 26.120 on Friday 8-5 from 26.470 on 8-4 versus a -0.94% decline in the XAU on 8-5, which is a sharp (2-2.99%) 2.26% rise in complacency (-1.32% + -0.94% = -2.26%. The XAU wall of worry shrank by -2.26%, therefore complacency rose by 2.26%) that portends weakness/a downtrend on Monday 8-8 (complacency is usually contrarian and therefore normally portends weakness, until it reachs an unusually large level (> 6% increase) where it becomes non contrarian).
  

• The very sharp volatility spikes experienced by HUI, NEM, and the XAU (NEM fell -4.23% from it's short term cycle high just after the open on 8-4 to it's potential short term cycle low late on 8-5) following their spike moves points to substantial strength following short term cycle lows that may have occurred late on Friday 8-5.

• The fact that the XAU bounced right at it's Bull Market trendline on May 16, 2005 (see 5 year chart dated 7-12-05) made the 5% follow through parabolic trendline buy signal that occurred in late May/early June a no brainer (HUI chart dated 6-3-05). Remember that 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).

• The Gold COT (Commitments of Traders) data indicates that the non contrarian gold Commercial Traders are anticipating a minor intermediate term cycle high because they sold an unusually large (> 10% decrease in long contracts) 8248 long futures and options contracts (data as of 8-2-05) which portends strength this week (contrarian case short term) after selling an unusually large (> 10% decrease in long contracts) 14,585 long futures and options contracts the week before. They added 6337 short futures and options contracts after covering a large 13,163, a large 16,960, a large 19,554, and an unusually large (> 10% decrease in short contracts) 26,665 short futures and options contracts the prior four weeks. Both the gold and silver COT data point to some significant strength this week, which isn't surprising given that HUI, NEM, and the XAU experienced very sharp gains last week. Gold is due to correct (see 1 year chart) soon (remember that the metals usually lag) and the USD is due to rebound some (see 1 year chart), but a major intermediate term cycle high appears to have occurred for the US Dollar, because it's parabolic shaped intermediate term upcycle trendline since late December has broken down (see 1 year chart). A 5% follow through sell signal is required to confirm that a major intermediate term cycle high occurred for the USD.              
  

• The NEM Lead Indicator was slightly bearish last week, with NEM underperforming the XAU by -0.08% after outperforming the XAU by +0.26% and +0.81% the prior two weeks. However, NEM did lead to the upside by a wide margin during the major breakout that occurred on August 3, which is a great sign as previously discussed. NEM, after dramatically underperforming the XAU for a few months (see last chart in the first group below), began to outperform the XAU on July 14. Based on two years of watching the NEM Lead Indicator it's very unlikely that a major rally will occur without being preceded by at least a few weeks in which NEM significantly outperformed the XAU. NEM outperformed the XAU for 5 weeks prior to May 16, 2005's major intermediate term cycle lows for example by +0.10%, +1.83%, +0.08%, +0.44%, and +0.97%. The fact that NEM has significantly outperformed the XAU for over 3 weeks is a good sign and is basically a prerequisite for a major rally.
  

• HUI, NEM, and the XAU did a lot of gap filling recently. Most of the time if it appears reasonable that a gap will be filled, then it probably will get filled. You should be aware of gaps when making buy/sell decisions. The XAU has an upside gap above 100 created in March.

• The major intermediate term upcycle trendlines since May 16, 2005 for HUI, NEM, and the XAU (see 2 year charts below, gold since early February, see it's 1 year chart) should become more parabolic/sharply rising over time, as cycles almost always do, and given that this should be the sharply rising phase of the long term upcycle (began on 5-10-04), dramatic gains should occur. HUI, NEM, and the XAU should approximately double from their major intermediate term cycle lows on 5-16-05 to their long term cycle highs as discussed in previous updates. This major intermediate term upcycle should last about twice as long as last year's (6 months from 5-10-04 until 11-17-04) and see about twice the gains (100% or so versus HUI's 51.50% from 5-10-04 until 11-17-04). Note in HUI's 5 year chart dated 6-29-05 (first chart below) that the long term cycles are getting longer. The previous long term upcycle's parabolic phase lasted about 9 months, so it's reasonable to assume that this one will last about one year (until May 2006).
  

• HUI, NEM, and the XAU should be in a minor intermediate term upcycle (from July 19) for about one month or more, in similar fashion to the one from May 16 until mid June/early July. HUI's previous one lasted nearly two months while NEM and the NEM dominated XAU's previous one was a few weeks shorter.
  

• As discussed in previous updates major intermediate term cycle buy signals occurred in late May/early June for gold/silver stocks (see HUI chart dated 6-3-05) and gold's major intermediate term cycle buy signal occurred a few weeks later in June (see 1 year chart below), strongly suggesting that the good times are back, as does the fact that gold/silver stocks have been in an uptrend/long term upcycle for well over a year (since May 10, 2004) and gold has been in an uptrend for nearly six months (since early February).
  

• Williams %R is below overbought territory (at or above -20 is overbought) for HUI (-30.90)/NEM (-34.80)/XAU (-29.60) on 8-5-05 (see 2 year charts). If it hits an overbought level well above -20 (near 0) that's 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 below, most of you should probably be holding until a long term cycle sell signal occurs in 6 to 12 months).
  

• The remainder of the charts can be found at the bottom. The very long term upcycle trendlines are now relatively flat rather than parabolic (with a segment having turned up), but the major buy/sell signals shown still apply.
  

• The fact that the XAU Put/Call Ratio (August expiration) rose substantially last week from 0.77570 to 0.95013 despite a very sharp rise in the XAU is a substantial rise in fear (the wall of worry grew substantially) that portends substantial strength for the next week or two. Interestingly, it's 12.10% rise on Friday August 5 to 0.95013 from 0.84759 on August 4 was an unusually large rise in fear that correctly portended weakness/a downtrend during most of last Friday's session. Also, XAU Implied Volatility rose from 25.44 on 7-29 to 26.12 on 8-5 despite a very sharp rise in the XAU last week which is a substantial rise in fear (the wall of worry grew substantially) that portends substantial strength for the next week or two.
  

• Many of the bullets that follow haven't changed from last week because this is a system ("Trade the Cycles") and because some are reading this for the first time. Some bullets are needed for reference purposes or to revisit important developments in the precious metals sector.
  

• Gold hit a 2% follow through buy signal recently (see one year chart above), indicating that a minor intermediate term cycle low occurred near $418. The major intermediate term upcycle since early February may have turned up/increased in strength, but I'll leave the trendline as is for now. It's wise to wait for an increase in strength/more sharply rising segment to become reasonably well established before assuming it exists. The more points that fall on a trendline the more likely it is to be useful/valid and the stronger the support or resistance it represents.
  

• I update my gold/silver stock "Current Assessment" near the top of my home page (middle of the second bullet) regularly, so near critical times especially, you may want to check it out. Also, you can see how I use the indicators in concert with cycles just above the "Current Assessment." Fascinating!
  

• There's been a one monthish summer correction every year the past 5 years. Statistically, when something happens 5 consecutive times it's worth noting, because there's only a 3.125% chance that it was due to pure luck (50% raised to the fifth power). In Summer 2004 there actually were two corrections lasting a few weeks each. The XAU didn't exceed it's late May 2004 high until late August 2004, so the two minor corrections were the equivalent of the major Summer correction. In 2003, even though HUI, NEM, and the XAU were in the midst of the nine month parabolic phase of the previous long term upcycle, they corrected for about a month. The XAU fell from 82.69 on June 19, 2003 to 73.41 on July 16, 2003 which was an -11.22% decline in 4 weeks. In 2005 the XAU fell from 95.10 on June 30 to 89.03 on July 19, 2005 which was a modest -6.38% decline, but it did last nearly 3 weeks and NEM fell from 40.34 on June 23, 2005 to 36.55 on July 19, 2005 which was a -9.40% decline in 4 weeks.
  

• It's obviously the time factor that's important in addition to the magnitude of the Summer corrections. Minor 5-10% corrections lasting about one week happen nearly every month, so being aware of when major corrections are likely is helpful. A major factor behind Summer corrections may be that investors and traders simply took profits prior to going on vacation, and, when they're on vacation, there's less buying power in the market. If long term cycle highs do occur in May 2006 or thereabouts, then the Summer correction will be a no brainer next Summer, because a 3 to 6 month correction (maybe more) should ensue following long term cycle highs. The long term cycles are getting longer, so this parabolic phase should last about one year (until May 2006) versus 9 months for the previous long term upcycle's parabolic phase. The corrections will obviously tend to be longer also.

• Notice in the XAU's very long term upcycle chart dated 7-12-05 above that the XAU hit it's Bull Market/very long term upcycle trendline on May 16, 2005, which was a major intermediate term cycle low, and adds even more confidence to the bullish case, as does the fact that HUI, NEM, and the XAU all have uptrends (that my system calls long term upcycles) since May 10, 2004.

• The most important gold/silver stock timing consideration now is that the long term upcycle that began on May 10, 2004 for HUI, NEM ,and the XAU increased in strength after May 16, 2005's major intermediate term cycle lows. That is, the long term upcycle's rising bottoms trendline turned up after May 16, 2005's major intermediate term cycle lows (see 3 month charts 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.
  

• You'll see a fair number of people (who don't understand cycles) say that there's been a gold/silver stock correction since December 2003/January 2004, when long term cycle highs occurred for HUI, NEM, and the XAU. As the top chart above reveals that's not true because the long term downcycle's parabolic shaped trendline bottomed on May 10, 2004. The trendlines are roundish/parabolic (see the previous cycles in the first chart above for confirmation and note that for shorter cycle timeframes trendlines are roundish, becoming increasingly sharply rising in upcycles or sharply declining in downcycles).
  

• The very flat early segment of the long term upcycle from May 10, 2004 until May 16, 2005 for HUI, NEM, and the XAU was basically the first half of the long term upcycle (see first chart above, the HUI 5 year chart dated 6-29-05). Since it lasted about 1 year it's reasonable to expect the parabolic/sharply rising phase of the long term upcycle (began on May 16, 2005) to last about 1 year. The fact that the long term cycles have been getting progressively longer and substantially so (see HUI 5 year chart dated 5-12-05 above) also suggests that this sharply rising segment will last about 1 year, which means that long term cycle highs may not occur until May 2006. The parabolic/sharply rising segment of the previous long term upcycle lasted about 9 months, from March 2003 until the December 2, 2003 (HUI/NEM)/January 6, 2004 (XAU) long term cycle highs. My target range for the long term cycle high is 330-350 for HUI.
  

• Gold put in a major bottom near $410 in early February, so it led the stocks pricewise but didn't flash a major buy signal until June (see 1 year chart below), a few weeks after HUI, NEM, and the XAU did (see HUI chart dated 6-3-05). So, "major cycle effect wise" gold still lagged gold stocks even though pricewise it bottomed earlier, which is the first time I've seen gold lead gold stocks pricewise. Gold stocks still led gold in that they flashed a major intermediate term cycle buy signal a few weeks before gold did.
  

• Since most traders should be trading major intermediate term upcycles (downcycles for short sellers) that last about 6 to 12 months (one began 5-16-05 and probably will last about 1 year as discussed previously), the holding period should be fairly long and the degree of trading activity very low for most investors/traders (Previous major intermediate term upcycle from 5-10-04 until 11-17-04 in which HUI rose 51.50%). If you want to short term trade start with a modest amount of capital relative to your total and see how you do. The bottom line is that most investors/traders shouldn't be sweating near term swings now since the major intermediate term cycle buy signal that occurred in late May/early June (see HUI chart dated June 3) strongly suggests that May 16, 2005's cycle lows were major cycle lows as discussed in previous updates.
  

• The dramatic decline scenario typically portended by NEM's severe underperformance versus the XAU in recent months (see last chart in the group above) will probably be avoided. At any cycle phase other than the sharply rising phase of the long term upcycle NEM's recent dramatic underperformance versus the XAU would portend a dramatic 20% or more decline. A period of NEM outperformance is probably needed now in order for gold/silver stocks to enjoy a major rally. NEM began to outperform the XAU on July 14.
  

• The USD may have finally put in a major intermediate term cycle high, because it's parabolic uptrendline appears to have broken down (see 1 year chart above). A 5% follow through sell signal is required to confirm that's the case. The dramatic spike also suggests that a major cycle high may have occurred.

• 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 reliable non contrarian (in terms of their trading activity) USD Commercial Traders are now correctly positioned for US Dollar weakness (massively short) with 9052 long futures and options contracts versus 19,089 short futures and options contracts as of 8-2-05. A few months ago they were substantially net long, so they've dramatically repositioned themselves for a major decline in the US Dollar, which is great news for precious metals in US Dollar terms. The USD's major intermediate term upcycle since late December 2004 appears to have broken down recently as previously discussed. Please see the 1 year USD chart above. When dramatic spike moves break down they tend to fall hard and fast. The more dramatic the spike move the more dramatic the breakdown tends to be. The NASDAQ Composite's (COMPX) dramatic decline to the 1100 area (long term cycle low) in October 2002 after experiencing a very long term cycle high above 5000 in March 2000 is a great example of what happens after dramatic spike moves. COMPX fell about 77% following it's very long term cycle high above 5000 in March 2000.

• 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.
  

• Cycles are the most important consideration when timing any market. There's been a major intermediate term upcycle since May 16, 2005 for HUI, NEM, and the XAU (the HUI chart dated 6-3-05 shows the 5% follow through major buy signal requirement being satisfied, which is one of two major buy signal requirements), a long term upcycle since May 10, 2004 for HUI, NEM, and the XAU (see first chart above, the HUI 5 year chart dated 6-29-05), and a very long term upcycle since late 2000 for HUI, NEM, and the XAU (see HUI 5 year chart dated 6-29-05 (top chart above) and XAU 5 year chart dated 7-12-05).
  

• "Trade the Cycles" indicates that HUI, NEM, and the XAU are now on a major intermediate term cycle buy signal (see HUI chart dated 6-3-05). Gold/silver stocks are in a very long term upcycle/true Bull Market since October/November 2000 (see 5 year XAU chart above dated 7-12-05 and the HUI 5 year chart dated 6-29-05) and are in a long term upcycle since May 10, 2004 (see first chart above, the HUI 5 year chart dated 6-29-05). Gold began a very long term upcycle/true Bull Market in April 2001 and silver did so in late 2001.

• Gold hit a major intermediate term cycle buy signal (see 1 year chart above) in June because it followed through by more than 5% after breaking it's intermediate term downcycle trendline in place since early December 2004. This major buy signal lagged gold stocks' major buy signal by a few weeks, but this is the first time that I've seen gold hit a major bottom (early February 2005) well before gold stocks did (May 16, 2005) in this very long term upcycle since late 2000 for gold/silver stocks and since April 2001 for gold (late 2001 for silver), which is probably a major positive. Gold usually lags gold stocks at major cycle highs/lows. Gold peaked in early December 2004 versus HUI, NEM, and the XAU doing so on 11-17-04 and gold peaked in early April 2004 versus HUI and NEM doing so on 12-2-03 and the XAU doing so on 1-6-04 (long term cycle highs).
  

• Most of you will do much better holding for the next 6 to 9 months as opposed to actively trading, at which time long term cycle highs should occur for HUI, NEM, and the XAU that may be about double the level of the major lows on 5-16-05. HUI may rise on the order of 100% to about 330 in the next 6-9 months assuming a long term upcycle is in effect. NEM may rise to the 70-75 area in the next 6-9 months in that case. The XAU may rise to about 150 in the next 6-9 months in that case.

• HUI, NEM, and the XAU followed through by more than 5% after breaking their intermediate term downcycle trendlines in place since 11-17-04 (see HUI chart dated 6-3-05). Therefore, major buy signal requirement number two has been satisfied, with requirement one, a clearly bullish NEM Lead Indicator, being satisified by the recent five week stretch in which NEM significantly outperformed the XAU. The two major buy signal requirements would have weeded out all six previous important cycle lows in the major correction from being major cycle low candidates, and, there's only a 1.56% chance that result was due to pure luck (50% raised to the sixth power).
  

• Major intermediate term cycle lows probably 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.
  

• Additional confidence factors that point to May 16 being a major bottom include the fact that the gold Commercial Traders added aggressively to their long position for a few weeks following the major bottom in addition to engaging in massive short covering, the USD Commercial Traders are now massively short, reliable lead indicator NEM rallied on well above average volume, the XAU Put/Call Ratio (June expiration) remained steady near 0.80 despite a substantial rally which indicated that many doubted the low was in, XAU Implied Volatility spiked dramatically near the May 16, 2005 major intermediate term cycle low (rose to 32 area from below 25 in early April 2005) in similar fashion to what occurred near the May 10, 2004 long term cycle low and didn't occur at other times (rose to 42.50 area from 30.50 area in early April 2004), and an Elliot Wavesque A, B, C correction pattern culminated on May 16, 2005.
  

• Looking at the first 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 the previous 5 long term cycle buy/sell signals correctly indicated that the long term cycle high or low was in. The probability that coincidence/pure luck led to that outcome is only 3.125% which is 50% raised to the fifth power. Assuming that last year's long term cycle buy signal correctly indicated that May 10, 2004 was a long term cycle low, which appears very likely, then the long term cycle buy/sell signals will only have a 1.56% chance of being ineffective in the future (50% raised to the sixth power), assuming that a very long term upcycle remains in effect. 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 Commercial Traders (typically) correctly begin to take substantial profits 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).
  

• A new indicator is Chaikin Money Flow (CMF) for reliable lead indicator Newmont Mining (NEM). Money flow is a primary fundamental indicator. Notice how NEM CMF turning negative tends to correspond closely with the beginning of sharp downcycles. Please see the 2 year NEM chart above dated 8-5-05. NEM's CMF closed at -0.35 on 8-5-05. Given that a CMF level of -0.25 for NEM reflects strongly negative CMF, then -0.35 is extremely negative CMF.
  

• The prior two long term cycles in this gold/silver stock Bull Market (since late 2000) had lower major (intermediate term cycle) highs after long term cycle highs that were followed shortly thereafter by the parabolic/sharply rising segment of the long term upcycle (the long term cycles have been getting longer, see the HUI 5 year charts). The trend of longer long term cycles means that major corrections will tend to be longer also.
  

• The negative correlation between gold and the USD is not as high as the correlation coefficient makes it seem, since it's the square root of the strength of the correlation. It's -58% on 8-5 (-59% on 7-29) for the past 180 trading days for gold, according to Moore Research Center, Inc. For silver the negative correlation coefficient with the USD is -11% on 8-5 (-12% on 7-29) for the past 180 trading days. Silver's correlation is much more positive than gold's because it's more of an industrial metal than gold is, hence it has a more positive correlation with US economic strength and a strong US Dollar. 

• The positive correlation coefficient between gold and the S & P 500 is -2% for the past 180 trading days (positive correlation coefficient with silver is +5%), according to Moore Research Center, Inc. This means that the S & P 500 determines 0.04% of gold's price action/variability (Coefficient of Determination = 2% squared = 0.04%). The S & P 500's sharp decline from early March until late April is a major reason why gold and gold stocks were weak during that stretch (positive correlation coefficient between gold and the S & P 500 for the past 180 trading days was at 60% 12 weeks ago). The next bullet discusses the Coefficient of Determination.
  

• 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 33.64% (-58% times -58% = 33.64%) of gold's price action/variability now since the USD's negative correlation coefficient with gold is -58% as of 8-5-05. The USD determines only 1.21% of silver's price action/variability since the USD's negative correlation coefficient with silver is -11% as of 8-5-05. 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 Gold:XAU Ratio (currently at 4.61) 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 might be a better criterion.
  

• The report I received via e mail from Marketocracy for the week ending 8-5-05: "JFR - Joe F. Rocks's Mutual Fund, Net Asset Value (NAV): $9.94 on 8-5 vs $9.54 on 7-29, Compliant: Yes, This past week Return: +4.20%." HUI (AMEX Gold Bugs Index) was up +4.64% last week for comparison, so JFR outperformed HUI in 14 of the past 29 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 down 0.60% since it's inception on 1-5-05.
  

• XAU Implied Volatility fell -1.32% to 26.120 on Friday 8-5 from 26.470 on 8-4 versus a -0.94% decline in the XAU on 8-5, which is a sharp (2-2.99%) 2.26% rise in complacency (-1.32% + -0.94% = -2.26%. The XAU wall of worry shrank by -2.26%, therefore complacency rose by 2.26%) that portends weakness/a downtrend on Monday 8-8 (complacency is usually contrarian and therefore normally portends weakness, until it reachs an unusually large level (> 6% increase) where it becomes non contrarian). That weakness/downtrend could follow a gap up at the open and early strength. XAU Implied Volatility tends to indicate a trend/tone rather than necessarily up or down for that session. The XAU Put/Call Ratio is another very important indicator that may disagree with XAU Implied Volatility. These indicators must be used in concert with cycle channels/trendlines (very long term, long term, intermediate term, and short term).

• The XAU Put/Call Ratio is at 0.95013 for the August expiration on 8-5 versus at 0.77570 for the August expiration on 7-29 versus at 0.85459 for the July expiration on 7-8 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 weakness 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 underperformed the XAU last week by -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 19 weeks): -0.99% vs -0.94% on 8-5, -1.47% vs -0.17% on 8-4, +5.32% vs +4.02% on 8-3, +1.46% vs +1.36% on 8-2, +0.11% vs +0.24% on 8-1.        

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

• The reliable non contrarian (in terms of their trading activity) gold Commercial Traders are short gold. They are clearly positioned for gold weakness with only 71,960 long futures and options contracts versus 178,522 short futures and options contracts (data as of 8-2-05).
  

• The notoriously contrarian (in terms of their trading activity) gold Speculators are correctly positioned for gold strength with 119,229 long futures and options contracts versus only 49,881 short futures and options contracts (data as of 8-2-05).

• The gold Commercial Traders sold an unusually large (> 10% decrease in long contracts) 8248 long futures and options contracts (sold 14,585 the prior week, added 10,066, 10,022, 4733 the prior three weeks) and added 6337 short futures and options contracts (covered 13,163, 16,960, 19,554, 26,665 the prior four weeks) which portends strength this week (non contrarian indicator), because the unusually large degree of long liquidation is the contrarian case short term, but the short selling 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 8-2-05, so the data is somewhat stale (for short term cycle trading) by the time it's analyzed, but is highly useful nonetheless, especially for intermediate term cycle trading (a few weeks/months).

• The gold Speculators (hedge funds and other speculators/traders) added a large 6406 long futures and options contracts (sold 3899, 7935, 23,682, 36,820 the prior four weeks) and covered an unusually large (> 10% decrease in short contracts) 7457 short futures and options contracts (covered 2223 the prior week, added 12,036, 8147 the prior two weeks) which portends strength this week (contrarian indicator), because the unusually large degree of short covering is the contrarian case short term, but the long trade points to some weakness because they tend to be contrarian. 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 with only 34,811 long futures and options contracts versus 91,933 short futures and options contracts as of 8-2-05.

• The notoriously contrarian (in terms of their trading activity) silver Speculators are correctly positioned for silver strength with 43,516 long futures and options contracts versus only 9588 short futures and options contracts as of 8-2-05.

• The silver Commercial Traders sold a large 3170 long futures and options contracts (sold 3715 the prior week, added 1492, 1927, 8586 the prior three weeks) and added an unusually large (> 10% increase in short contracts) 10,229 short futures and options contracts (covered 4687 the prior week, added 549 the prior week, covered 1244, 13,971, 3899, 475 the prior four weeks) which portends strength (non contrarian indicator) this week, because the unusually large degree of short selling is the contrarian case short term, but the long liquidation points to some weakness because they tend to be non contrarian. The most important consideration in timing any market is the cycle channels/trendlines.

• The silver Speculators (hedge funds and other speculators/traders) added a large 2416 long futures and options contracts (sold 2836 the prior week, added 1889 the prior week, sold 1245, 10,966, 3328, 2231, 5182 the prior five weeks) and covered an unusually large (> 10% decrease in short contracts) 9740 short futures and options contracts (covered 2765 the prior week, added 2848, 557, 12,064, 951, 43 the prior five weeks) which portends strength this week (contrarian indicator), because the unusually large degree of short covering is the non contrarian case short term, but the long trade points to some weakness because they tend to be contrarian. 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 now correctly positioned for US Dollar weakness (massively short) with 9052 long futures and options contracts versus 19,089 short futures and options contracts as of 8-2-05. Last week they added an unusually large (> 10% increase in long contracts) 2674 long futures and options contracts (sold 11 the prior week, added 1688, 277, 232, 60, 752 the prior five weeks) and covered an unusually large (> 10% decrease in short contracts) 3226 short futures and options contracts (covered 1315 the prior week, added 687 the prior week, covered 3966 the prior week) which portends weakness this week (non contrarian indicator), because the unusually large trades make them short term contrarian. 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 now incorrectly positioned for US Dollar strength (massively long) with 11,783 long futures and options contracts versus 2436 short futures and options contracts as of 8-2-05. Last week they sold an unusually large (> 10% decrease in long contracts) 4799 long futures and options contracts (sold 1041 the prior week, added 623 the prior week, sold 6568 the prior week, added 1987, 2655 the prior two weeks) and added an unusually large (> 10% increase in short contracts) 644 short futures and options contracts (added 21, 376 the prior two weeks, covered 1290 the prior week) which portends USD weakness this week (contrarian indicator), because the unusually large trades make them short term non contrarian.. The most important consideration in timing any market is the cycle channels/trendlines (see chart above).
  

• 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.
  

• 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 recently (early April), 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 and a long term upcycle has been in place since May 10, 2004 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).

• 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.
  

Joe F. Rocks!

====================== End of Update ==============================

The following analysis/commentary didn't change from 4-25's update -

There's some debate about wether the gold stock Bull has ended and deflation will occur or if inflation will increase substantially. Take a look at commodities, housing, healthcare costs, education costs, etc. and what do you see? It's not deflation. The US Dollar (USD) is merely having a countertrend rally and gold a countertrend decline that has a ways to go. The USD is in a very long term downcycle that began in mid 2001 which is INFLATIONARY. Case closed. Basically the US has a crappy economy and high inflation a la the 1970s which is great for precious metals just as it was in the 1970s.

The post bubble economic cycle has deflationary effects (such as in the stock market and the economy) that are being fought with massive stimulus and an extremely easy monetary policy at least as far as rock bottom short term rates are concerned.

The cycle based system I use has stood a great test and the long term downcycle remains in effect despite trendline "buy signals" suggesting otherwise (if one didn't use/understand cycles). The long term upcycle trendlines for HUI and the XAU that began in October 2002 for HUI and in July 2002 for the XAU broke down in January of this year and those indices are now heading (I strongly believe, similar to what occurred after the prior two long term upcycles broke down as shown in the chart below) for their very long term upcycle/Bull Market trendlines in the next few months.  The XAU should bottom in the 70-75 area as the chart below reveals.

As one can see in the chart below from 2-6-04 the XAU's long term downcycle remained in effect two long term cycles ago in