• The reliable non contrarian (in terms of their trading activity) USD Commercial Traders are now correctly positioned for US Dollar weakness (massively short) with 4423 long futures and options contracts versus 26,908 short futures and options contracts as of 7-5-05. 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 remains intact however. Please see the six month USD chart below. 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.

• NEM appears to be leading to the downside as far as correcting to it's major intermediate term upcycle trendline in place since 5-16-05 (see 3 month chart dated 7-8-05). The very bearish NEM Lead Indicator, which normally would portend a dramatic 15-20%+ decline in HUI and the XAU, probably portends a decline in HUI and the XAU toward their major intermediate term upcycle trendlines since May 16, 2005 (which should also be the sharply rising phase of the long term upcycle since 5-10-04). NEM has corrected more than HUI and the XAU have recently, is very near it's major intermediate term upcycle trendline on July 8, and may have put in a minor intermediate term cycle low at 37.83 on July 7. The good news is that HUI, NEM, and the XAU should avoid a retest of the May 16 major intermediate term cycle lows because they've probably entered the parabolic/sharply rising phase of the long term upcycle and the latest COT data clearly appears to confirm that scenario. HUI closed about 4% above it's major intermediate term upcycle trendline on July 8, so a decline to that trendline is obviously far from a disaster. The XAU, which is more heavily market cap weighted than HUI and hence is influenced much more by NEM, closed only 1% above it's major intermediate term upcycle trendline on July 8.
  

• 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. Given that the long term cycles (since the gold/silver stock Bull Market began in late 2000) have been getting progressively longer and substantially so (see HUI chart dated 5-12-05 below), this parabolic phase may last about a year, which means the major intermediate term upcycle since May 16, 2005 is still in it's early stage and could last until May of next year (about 1 year). My target range for the long term cycle high is 330-350 for HUI.
  

• I want to again stress the importance of gaps. As discussed last week, shortly after NEM filled it's big upside gap to 40.25 it began a multiweek downcycle. NEM filled downside gaps created by gaps up at the open on both Thursday and Friday last week. The downside gaps were filled the day they were created, and, if NEM bottomed on July 7, then the flat start to it's upcycle was a factor leading to weakness after early strength on 7-8. You should be aware of gaps when making buy/sell decisions. The XAU has a downside gap created at July 6's open slightly below 91 that could be filled this week, but it's minor intermediate term upcycle trendline (see latest 3 month chart) suggests that won't happen this week. The XAU's big gap above 100 created in March 2005 is important  because a correction may occur shortly after it's filled. The XAU may put in a minor intermediate term cycle high near 101 which would be about 12% above it's minor intermediate term cycle low at 90ish on June 21. So, short term traders can expect a tradable minor correction once the XAU fills it's big gap above 100.

• If you're wondering about the London terrorist attack's influence on the current long term upcycle, it's a small blip that added some volatility on July 7 and that's probably it. It's probably a very short term plus because it added fear and volatility, but basically it's a non event in terms of the big picture for the precious metals sector. Even on a near term basis it's probably a very minor event as far as it's influence on the precious metals sector.
  

• Now for some high relative strength and new gold/silver stocks. Not recommendations (not what I do), just stocks that are new and/or are doing well. Silver Wheaton (SLW) just got listed on the AMEX and is 66% owned by Goldcorp I believe. Jim Sinclair's Tan Range (TRE) recently got listed in the US on the AMEX and has been doing well. Yamana (AUY), Desert Sun (DEZ), El Dorado (EGO), IMA Exploration Inc. (IMR, new on AMEX), Meridian Gold (MDG), Mines Management (MGN, this one has a lot of insider selling though), and Western Silver (WTZ) have been doing well. Of the bigger gold/silver stocks Barrick (ABX) has been doing well and if the Pascua Mine in Chile clears all the glacier/environmental hurdles then ABX becomes a major silver producer, adds substantially to it's gold production, and also adds copper production as discussed in a previous update. Some of the stocks mentioned are thinly traded so make sure there's enough liquidity/volume if you plan to trade. I've noticed that thinly traded gold/silver stocks tend to have dramatic volume spikes near major cycle highs.

• I should point out that NEM has a (long term upcycle) double bottom with a long term cycle low at 34.70 on 5-10-04 and a major intermediate term cycle low at 34.90 on 5-16-05. I may not have previously pointed out the fact that NEM has, in addition to the long term upcycle since 5-10-04, a nice double bottom as well. HUI and the XAU's major cycle lows on those dates border on qualifying as double bottoms, so bullish technical formations are in place even if one isn't aware of cycles. The important consideration by far is the long term upcycle since 5-10-04 within a very long term upcycle since late 2000 and of course that a major intermediate term upcycle probably began on 5-16-05, which should be the parabolic/sharply rising segment of the long term upcycle since May 10, 2004. A double bottom for NEM probably wouldn't be a major positive if May 16, 2005's low had been below May 10, 2004's, which would have indicated that a long term upcycle wasn't in effect for reliable lead indicator NEM. Fortunately, a long term upcycle is in effect according to my well backtested (see next bullet) "Trade the Cycles" system.
  

• Looking at the first chart below, 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). 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. In an Elliot Wave A, B, C correction pattern, following the point A minor intermediate term cycle low, one could get an erroneous major buy signal for example because the wrong downtrendline might be used for the buy signal if you didn't know where the longer cycle's trendline was.
  

• "Trade the Cycles" now has many other timing tools/confidence factors for long term cycle buy/sell signals such as a clearly bullish or bearish NEM Lead Indicator (the second requirement for major buy/sell signals), likely Elliot Wave 1, 2, 3, 4, 5 upcycle and A, B, C correction/downcycle patterns, gold Commercial Traders adding aggressively to their long position for buy signals or selling aggressively for sell signals, a dramatic spike in XAU Implied Volatility that's only occurred near major bottoms in recent years, and of course the proximity to the very long term upcycle trendline (a target range can be derived) for long term cycle buy signals.
  

• Monthly cycle 2% follow through buy signals occurred on June 29 for HUI and the XAU (see 3 month charts). HUI probably bottomed on June 28, putting in point C of an Elliot Wave A, B, C correction (monthly cycle low, see latest 3 month chart). NEM may have put in point C on Thursday July 7 (see latest 3 month chart). The XAU probably bottomed on June 21 (see latest 3 month chart), but an Elliot Wave A, B, C correction did not occur.
  

• The latest 3 month charts for HUI, NEM, and the XAU show the very flat long term upcycle trendline until May 16, 2005 (began May 10, 2004), and, that it probably turned up dramatically after May 16, 2005. The XAU long term upcycle parabolic/sharply rising segment's rate of ascent is steeper than NEM's (see latest 3 month charts), which accounts for NEM underperforming by a wide margin recently. So, NEM's dramatic underperformance versus the XAU recently is probably a reflection of the fact that HUI, NEM, and the XAU are in the parabolic/sharply rising segment of the long term upcycle that began on May 10, 2004, which is obviously a major positive if true.
  

• There was a 1 monthish cycle from May 16 until June 28 for HUI, until July 7 (if point C occurred) for NEM, and until June 21 for the XAU, with Elliot Wave 1, 2, 3, 4, 5 upcycles and A, B, C corrections/downcycles for HUI and NEM, but not for the XAU. See HUI's chart dated 7-1-05 which shows the Elliot Wave points.
  

• The XAU 2 year chart dated 5-16-05 below 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 (see latest 3 month charts and 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 NEM 2 year chart dated 6-17-05), and a very long term upcycle since late 2000 for HUI, NEM, and the XAU (see HUI 5 year chart dated 6-29-05 and XAU 5 year chart dated 5-12-05).
  

• Gold hit a major intermediate term cycle buy signal (see 1 year chart below) recently 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).

• "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 chart for the XAU below) and are in a long term upcycle since May 10, 2004 (see NEM 2 year chart dated 6-17-05 below). Gold began a very long term upcycle/true Bull Market in April 2001 and silver did so in late 2001.

•  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 (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. The higher short intermediate term cycle low on June 9 (about a one month low) probably confirms that May 16 is a major bottom (a rising bottoms long intermediate term upcycle trendline is in place).
  

• Williams %R is below overbought territory (above -20) for HUI (-45.50)/NEM (-91.20)/XAU (-59.60) on 7-8-05. If it hits an extremely overbought level near 0 that's a reliable indication to look to take profits, which doesn't mean you mechanically sell, but that you probably will sell very soon or you may start selling (sell in 2 or 3 stages). The converse is of course true for extremely oversold levels near -100.00.
  

• 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 3 month NEM chart below dated 7-8-05. NEM CMF closed at -0.06 for NEM on 7-8-05. Given that a CMF level of -0.25 for NEM reflects strongly negative CMF, then -0.06 is significantly negative CMF.
  

• Interestingly, at this point the long term upcycle for HUI, NEM, and the XAU is similar to the previous ones (see the HUI 5 year chart dated 5-12-05). The cycle timeframes are getting longer however. 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 chart). 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 -54% on 7-8 (-54% on 7-1) for the past 180 days for gold, according to Moore Research Center, Inc. For silver the negative correlation with the USD is -5% on 7-8 (-1% on 7-1) for the past 180 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 between gold and the S & P 500 is 16% for the past 180 days (negative correlation with silver is -4%), according to Moore Research Center, Inc. This means that the S & P 500 determines 2.56% of gold's price action/variability (Coefficient of Determination = 16% squared = 2.56%). 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 between gold and the S & P 500 for the past 180 days was at 60% 8 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 29.16% (-54% times -54% = 29.16%) of gold's price action/variability now since the USD's negative correlation with gold is -54% as of 7-8-05. The USD determines only 0.25% of silver's price action/variability since the USD's negative correlation with silver is -5% as of 7-8-05. 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 4.59) may become a third major buy signal criterion, along with 5% follow through and a clearly bullish 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 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 report I received via e mail from Marketocracy for the week ending 7-8-05: "JFR - Joe F. Rocks's Mutual Fund, Net Asset Value (NAV): $9.64 on 7-8 vs $9.83 on 7-1, Compliant: Yes, This past week Return: -1.86%." HUI (AMEX Gold Bugs Index) was down -1.08% last week for comparison, so JFR outperformed HUI in 12 of the past 25 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 3.60% since it's inception on 1-5-05.
  

• 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!
  

• XAU Implied Volatility fell -3.67% to 26.905 on Friday 7-8 from 27.930 on 7-7 versus a +0.01% rise in the XAU on 7-8, which is a very sharp (3-6%) 3.66% rise in complacency (-3.67% + +0.01% = -3.66%. The XAU wall of worry shrank by -3.66%, therefore complacency rose by 3.66%) that portends weakness/a downtrend on Monday 7-11 (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 0.85459 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 versus at 0.48700 for the final April expiration on 4-15 versus 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 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 -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 15 weeks): -0.16% vs +0.01% on 7-8, -0.37% vs +0.43% on 7-7, +0.61% vs +0.92% on 7-6, -2.34% vs -2.62% on 7-5.        

• 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 74,704 long futures and options contracts versus 221,863 short futures and options contracts (data as of 7-5-05).
  

• The notoriously contrarian (in terms of their trading activity) gold Speculators are correctly positioned for gold strength with 148,339 long futures and options contracts versus only 39,379 short futures and options contracts (data as of 7-5-05).

• The gold Commercial Traders added a large 4733 (3918, 8544, 4162, 639, 23,530 sold the prior five weeks, 11,214, 860, 11,417, 9363 added the prior four weeks) long futures and options contracts and covered an unusually large (> 10% decrease in short contracts) 26,665 (added 21,234, 52,221, 17,891, 8457 the prior four weeks, covered 37,593, 8497, 29,470, 17,544, 26,014 the prior five weeks) short futures and options contracts which portends some weakness this week (non contrarian indicator), because the unusually large degree of short covering is the contrarian case short term, but the addition of 4733 long futures and options contracts points to some strength. 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 7-5-05, 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) 36,820 (added 15,962, 45,482, 9645, 789 the prior four weeks, sold 115, 9331, 11,417, 19,091, 22,590 the prior five weeks) long futures and options contracts and covered an unusually large (> 10% decrease in short contracts) 5248 (covered 9456, 10,743, 8655, 5491 the prior four weeks, added 12,638, 7410, 13,922, 8331, 10,107 the prior five weeks) short futures and options contracts which portends weakness this week (contrarian indicator), because the unusually large degree of long liquidation is the non contrarian case short term, but likewise, the unusually large degree of short covering points to some strength. 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 38,277 long futures and options contracts versus 87,085 short futures and options contracts as of 7-5-05.

• The notoriously contrarian (in terms of their trading activity) silver Speculators are correctly positioned for silver strength with 43,292 long futures and options contracts versus only 18,688 short futures and options contracts as of 7-5-05.

• The silver Commercial Traders added an unusually large (> 10% increase in long contracts) 8586 (sold 2 the prior week, added 515, 5964 the prior two weeks, 4750, 4443 sold the prior two weeks, 1363 added the week before, 507, 5858 added the two weeks ending 5-10-05) long futures and options contracts and covered an unusually large (> 10% decrease in short contracts) 13,971 (covered 3899, 475 the prior two weeks, added 3414, 9289, 14,467, 2447 the prior four weeks, covered 226 the week ending 5-17-05, and covered 14,841 the week ending 5-3-05) short futures and options contracts which portends weakness (non contrarian indicator) this week, because the unusually large long trade and the unusually large degree of short covering is the contrarian case short term. The most important consideration in timing any market is the cycle channels/trendlines.

• The silver Speculators (hedge funds and other speculators/traders) sold an unusually large (> 10% decrease in long contracts) 10,966 (sold 3328, 2231, 5182 the prior three weeks, added 12,457, 15,429 the prior two weeks, sold 41, added 611, sold 823, and sold 7580 in the prior five weeks) long futures and options contracts and added an unusually large (> 10% increase in short contracts) 12,064 (added 951, 43 the prior two weeks, covered 1716, 2807, 2801, 996, 1239, 2750 the prior six weeks, and added 13,999 the week before) short futures and options contracts which portends weakness this week (contrarian indicator), because the unusually large degree of long liquidation and the unusually large degree of short selling is the non contrarian case short term. 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 4423 long futures and options contracts versus 26,908 short futures and options contracts as of 7-5-05. Last week they added 232 (added 60, 752 the prior two weeks, sold 7545 the prior week, added 5823, 102 added, 360 added, 2151 sold the prior four weeks, and 616, 403, 1728, 2192, 4322, 3274 sold the six weeks ending 4-19-05) long futures and options contracts and added a large 1843 (added 2056, 804 the prior two weeks, covered 6482 the prior week, 6056, 1196, 2931,7151, 307, 2494 added the prior six weeks and 770, 2662, 2421, 1576 added the four weeks ending 4-12-05) short futures and options contracts which portends weakness this week (non contrarian indicator), but the addition of 232 long contracts points to some strength. 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 23,568 long futures and options contracts versus 2684 short futures and options contracts as of 7-5-05. Last week they added bordering on an unusually large (> 10% increase in long contracts) 1987 (added 2655 the prior week, sold 543 the prior week, added 1490, 372, 924, 1537, 6453, 361, and 1515 in the prior seven weeks) long futures and options contracts and added an unusually large (> 10% increase in short contracts) 382 (added 432 the prior week, covered 766, added 614, covered 404, covered 115, covered 1010, covered 1710, added 662 and 22 the prior eight weeks) short futures and options contracts which portends some USD strength this week (contrarian indicator), because of the bordering on unusually large long trade (non contrarian case short term). 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). 

• 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!

-- Posted Monday, 11 July 2005 | Digg This Article