• Things to look for on the day the intermediate term cycle lows occur that would support the bullish case are: 1. Obviously the long term upcycle trendlines (see 1 year charts below) must hold. 2. NEM should have high volume of 6 to 10 million shares. 3. NEM should be outperforming the XAU by a wide margin (leading to the upside).

• Williams %R for HUI, NEM, and the XAU is in extremely oversold territory near -100 (see charts below), which is an indication that a rally is likely soon.
  

• Cycles 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 18 years on average. Gold's previous very long term downcycle lasted from 1980 until April 2001.
  

• Major intermediate term cycle buy signals occurred for HUI, NEM, the XAU, and gold when they followed through by more than 5% after breaking through their intermediate term downcycle trendlines, following their early February major (intermediate term cycle) lows. One must remember the big picture.
  

• The long term upcycle should soon go parabolic, which means that the long term upcycle trendlines should soon have a sharper rate of ascent. The next 6 months or so should be an outstanding time for gold/silver stocks.
  

• It's a simple situation this week. HUI, NEM, and the XAU should fall to their long term upcycle trendlines which should be the great buying opportunity I've been looking for. If you're a firm believer in the gold/silver stock Bull Market, and you're brave enough, you can buy when HUI, NEM, and the XAU reach their long term upcycle trendlines. Or, you can wait for intermediate term cycle buy signals that occur when the intermediate term downcycle trendlines (connecting short term cycle highs) are broken and 2% follow through occurs (for typical intermediate term cycle buy signals, 5% for major buy signals).
  

• Gold appears to be heading for it's long term upcycle trendline currently at 417 (see 1 year chart). The US Dollar has rallied to it's very long term downcycle/Bear Market trendline in place since mid 2001 and should resume it's downtrend this week (see 1 year chart).
  

• Cycle channels/trendlines are the most important consideration in timing any market. 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).
  

• Major intermediate term cycle lows occurred on February 8 (HUI at 190.45, XAU at 87.60) and on February 9 (at 40.07 for NEM). HUI, NEM, and the XAU will put in (assuming the long term upcycle trendlines hold) intermediate term cycle lows not too far above the major lows that occurred in early February, since cycles tend to begin relatively flat. A substantial decline has occurred and a great buying opportunity is likely this week.
  

• Assuming that a long intermediate term upcycle began in early February for HUI, NEM, and the XAU, and, since cycles tend to begin relatively flat, it was reasonable to assume that HUI, NEM, and the XAU would put in short intermediate term cycle lows (about 1 month lows) in the 195-205 (HUI), 41-43 (NEM), and 90-95 (XAU) range respectively. Those target ranges were derived weeks ago using the long term upcycle trendlines (see previous updates).
  

• Short intermediate term cycles last about a month with typically a 3-5 week upcycle and about a 1 week downcycle.

• The remainder of the charts that include the very long term upcycle/Bull Market charts and the recent major 5% buy signals can be found at the bottom.
  

• Late last year the COT data correctly pointed to a major downturn and now they clearly point to a major upturn which has in fact begun. The Commercial Traders correctly went massively short late last year and traded dramatically net long near the early February major lows as well as last week.

• The report I received via e mail from Marketocracy for the week ending 3-24-05: "JFR - Joe F. Rocks's Mutual Fund, Net Asset Value (NAV): $9.96 on 3-24 vs $10.58 on 3-18, Compliant: Yes, This past week Return: -6.20%." HUI (AMEX Gold Bugs Index) was down -8.22% last week for comparison, so JFR outperformed HUI in 5 of the past 10 weeks. I sold 30% of my holdings on Thursday 2-10. 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 0.40% since it's inception on 1-5-05.
  

• The next 5 to 8 months, following the major bottom that probably occurred on 2-8 for HUI and the XAU, should be the sharply rising segment of the long term upcycle that began on 5-10-04, similar to the April 2003 to December 2003/January 2004 timeframe in the previous long term upcycle for HUI, NEM, and the XAU. Please see the 5 year NEM chart dated 1-7-05 which shows that NEM was recently near the bottom of it's very long term upcycle/Bull Market channel (the last bar should be closer to the bottom than it's shown since NEM's low was 41.38 on 1-7-05) and it's long term upcycle should soon "go parabolic" in similar fashion to what occurred in the prior long term upcycle. This means that the next 5-8 months should be even better than the previous 6 months, and probably dramatically better. Long term cycle highs well above the previous ones should occur (at 258.60 for HUI on 12-2-03, at 50.28 for NEM on 12-2-03, and at 113.41 for the XAU on 1-6-04), based on well established cyclic behavior (see 4-5 year charts).

• I update my gold/silver stock "Current Assessment" near the top of my home page (middle of the second bullet) typically five days a week (Monday through Thursday and Sunday), so near critical times especially, you may want to check it out. Also, you can see how I use the indicators in concert with cycles every day just above the "Current Assessment." Fascinating!
  

• Buy and hold for most investors/traders (until the long term cycle high in probably about 5-8 months) makes a lot of sense unless you're a nimble trader. Nimble traders have a good chance (using my "Trade the Cycles" system) of increasing returns by trading intermediate term cycles that typically last 1 to 3 months for an entire cycle up and down. Most traders/investors are much better off buying and holding long term upcycles.
  

• XAU Implied Volatility fell -1.34% to 24.240 on Thursday 3-24 from 24.565 on 3-23 versus a -1.01% decline in the XAU on 3-24, which is a sharp (2-2.99%) 2.35% rise in complacency (-1.34% + -1.01% = -2.35%. The XAU wall of worry shrank by 2.35%, therefore complacency rose by 2.35%) that portends weakness/a downtrend on Monday 3-28 (complacency is usually contrarian and therefore normally portends weakness, until it reachs an unusually large level (> 6% increase) where it becomes non contrarian). That weakness/downtrend could follow a gap up at the open. XAU Implied Volatility tends to indicate a trend/tone rather than necessarily up or down for that session. The XAU Put/Call Ratio is another very important indicator that may disagree with XAU Implied Volatility. These indicators must be used in concert with cycle channels/trendlines (very long term, long term, intermediate term, and short term).

• The XAU Put/Call Ratio is at 0.64612 for the April expiration on 3-24 versus at 0.56722 for the April expiration on 3-18 versus at 1.04250 for the final March expiration on 3-18 versus 0.94130 for the final February expiration on 2-18. The XAU Put/Call Ratio was at 0.65704 for the final January expiration value as of 1-21. The XAU Put/Call Ratio was at 0.79348 for the final December expiration as of 12-17-04. The XAU Put/Call Ratio was at 1.03065 for the final November expiration value as of 11-19-04. The XAU Put/Call Ratio was at 0.85989 for the final October expiration value as of 10-15. If it rises 6% or less it portends strength following likely early weakness (indicated by XAU Implied Volatility). If it falls 6% or less it portends weakness. At unusually large greater than 6% moves the XAU Put/Call Ratio becomes non contrarian, so a greater than 6% rise portends weakness (unusually large rise in fear) and a greater than 6% decline portends strength (unusually large rise in complacency).
  

• A major indicator (NEM Lead Indicator) portending strength this week following an intermediate term cycle low (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 (holiday shortened) week by +0.97%: -0.17% vs -1.01% on 3-24, -1.99% vs -1.94% on 3-23, -1.86% vs -2.06% on 3-22, -2.77% vs -2.75% on 3-21.                    

• 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 negative correlation between gold and the USD is now very high. It's -NA% on 3-24 (-87% on 3-17) for the past 180 days for gold, according to Moore Research Center, Inc. For silver the negative correlation with the USD is -NA% on 3-24 (-57% on 3-17) for the past 180 days. Silver's negative correlation is much less than gold's because it's more of an industrial metal than gold is, hence it has a more positive correlation with US economic strength and a strong US Dollar.

• The reliable non contrarian (in terms of their trading activity) gold Commercial Traders are short gold. They are clearly positioned for gold weakness with only 100,242 long futures and options contracts versus 257,263 short futures and options contracts (data as of 3-22-05).
  

• The notoriously contrarian (in terms of their trading activity) gold Speculators are correctly positioned for gold strength with 150,243 long futures and options contracts versus only 30,687 short futures and options contracts (data as of 3-22-05).

• The gold Commercial Traders sold 5877 long futures and options contracts and covered an unusually large (> 10% decrease in short contracts) 31,255 short futures and options contracts which normally portends strength this week (non contrarian indicator), but the unusually large degree of short covering points to some weakness (contrarian case), as does the sale of 5877 long futures and options contracts. The most important consideration in timing any market is the cycle channels/trendlines (see charts) and keep in mind that the data is as of 3-22-05, 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) sold an unusually large (> 10% decrease in long contracts) 31,064 long futures and options contracts and covered an unusually large (> 10% decrease in short contracts) 8456 short futures and options contracts which normally portends strength this week (contrarian indicator), but the unusually large decrease in their net long position points to some weakness. The most important consideration in timing any market is the cycle channels/trendlines (see charts below). 

• The reliable non contrarian (in terms of their trading activity) silver Commercial Traders are short silver. They are clearly positioned for silver weakness with only 21,147 long futures and options contracts versus 86,533 short futures and options contracts as of 3-22-05.

• The notoriously contrarian (in terms of their trading activity) silver Speculators are correctly positioned for silver strength with 46,630 long futures and options contracts versus only 5647 short futures and options contracts as of 3-22-05.

• The silver Commercial Traders added an unusually large (> 10% increase in long contracts) 2957 long futures and options contracts and covered 1393 short futures and options contracts which normally portends strength (non contrarian indicator) this week, but the unusually large increase in long contracts portends some weakness (contrarian case). The most important consideration in timing any market is the cycle channels/trendlines (see charts below).

• The silver Speculators (hedge funds and other speculators/traders) sold 2883 long futures and options contracts and added an unusually large (> 10% increase in short contracts) 2561 short futures and options contracts which normally portends strength this week (contrarian indicator), but the unusually large degree of shorting points to some weakness (non contrarian case). The most important consideration in timing any market is the cycle channels/trendlines (see charts below).

• The reliable non contrarian (in terms of their trading activity) USD Commercial Traders are positioned for US Dollar strength with 9886 long futures and options contracts versus 2712 short futures and options contracts as of 3-22-05. Last week they sold an unusually large (> 10% decrease in long contracts) 4322 (3274 sold the prior week) long futures and options contracts and added an unusually large (> 10% increase in short contracts) 1576 short futures and options contracts which portends USD weakness this week (non contrarian indicator), because they traded net short by 5898 futures and options contracts (normally the unusually large trades would portend some strength (contrarian case), but most of that strength probably occurred last week because the USD is near it's very long term downcycle/Bear Market trendline). The most important consideration in timing any market is the cycle channels/trendlines (see charts).
  

• The notoriously contrarian (in terms of their trading activity) USD Speculators are correctly positioned for US Dollar weakness with only 5147 long futures and options contracts versus 12,138 short futures and options contracts as of 3-22-05. Last week they sold an unusually large (> 10% decrease in long contracts) 1896 long futures and options contracts and covered an unusually large (> 10% decrease in short contracts) 6942 short futures and options contracts which portends USD weakness this week (contrarian indicator), because they traded net long by 5046 futures and options contracts (normally the unusually large net long trade would portend some strength (non contrarian case), but most of that strength probably occurred last week because the USD is near it's very long term downcycle/Bear Market trendline). The most important consideration in timing any market is the cycle channels/trendlines (see charts below).
  

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

• 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. My current holdings are ABX (Barrick Gold), AGT (Apollo Gold), CDE (Coeur D' Alene, mostly silver), DEZ (Desert Sun, mostly gold), FCX (Freeport McMoran, gold/copper), HL (Hecla Mining, a gold/silver mix but silver at heart), GG (Goldcorp, mostly gold), GLG (Glamis Gold), GSS (Golden Star, mostly gold), MDG (Meridian, mostly gold), NEM (Newmont Mining, mostly gold), NG (Novagold), NTO (Northern Orion, mostly gold), PAAS (Pan American Silver), SIL (Apex Silver), SSRI (Silver Standard Resources), and WTZ (Western Silver). 

• Please don't take these as recommendations, they're not. I'm in the business of providing market timing information and most of the money I make is from trading in my personal accounts (I don't have a subscription service, at least not yet). The Joe F. Rocks fund at Marketocracy will provide a great independently tracked way of assessing "Trade the Cycles" as well as my trading ability and you can compare me to other market timers. I think I have a great shot at being very near the top of Marketocracy's rankings in 6 months (when they'll first rank my fund), partly because of how great the gold/silver stock market is, but largely because of my "Trade the Cycles" system. Given how volatile gold/silver stocks are it would be easy to have a substandard rate of return relative to HUI and the XAU if one wasn't good at timing gold/silver stocks. I'll be doing mostly intermediate term cycle trading (cycles that last about 4-6 weeks from cycle low to the next cycle low) and some short term cycle trading. Once the long term cycle high occurs probably in about 6 months I'll be 35% in cash and will find low volatility stocks to park most of the rest of the fund. I have to be at least 65% invested, which ties my hands some, but I should still do very well. Margin and short selling aren't allowed by Marketocracy because they're following typical mutual fund guidelines. I could end up running a real mutual fund for them if I rank very high. Desert Sun (DEZ) wasn't identified as a mining firm by Marketocracy for some weird reason, thus the 1% other in the sector allocation.

Joe F. Rocks!

-- Posted Sunday, 27 March 2005 | Digg This Article