• 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.
  

• Gold hit a 2% follow through buy signal last week (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.
  

• 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.

• 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.
  

• 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).
  

• There's been an uptrend/long term upcycle since May 10, 2004 according to/strongly suggested by backtesting. That HUI, NEM, and the XAU have rising bottoms uptrends since May 10, 2004 is a fact, the only question is will they experience sustained parabolic upcycles now in which dramatic gains will occur (the parabolic/sharply rising phase of the long term upcycle, see top chart above), as happened in the prior three long term upcycles of this gold/silver stock Bull Market that began in late 2000. No one can say that May 10, 2004's cycle lows definitely are long term cycle lows, but, that it's very likely they are based upon backtesting (see top chart above), the nature of cycles, and the many confidence factors discussed in previous updates and in this update (the XAU hit it's Bull Market trendline on May 16, 2005, see chart dated 7-12-05 above). The previous long term cycles worked the same way and a very long term upcycle is in effect since late 2000 (see top chart above and XAU chart dated 7-12-05 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 (trade parabolas basically, see the first chart above or the 3 month charts, 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 6378 long futures and options contracts versus 22,315 short futures and options contracts as of 7-26-05. 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 3 month NEM chart above dated 7-29-05. NEM's CMF closed at -0.47 on 7-29-05. Given that a CMF level of -0.25 for NEM reflects strongly negative CMF, then -0.47 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 -59% on 7-29 (-59% on 7-22) for the past 180 trading days for gold, according to Moore Research Center, Inc. For silver the negative correlation coefficient with the USD is -12% on 7-29 (-11% on 7-22) 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 -5% for the past 180 trading days (negative correlation coefficient with silver is 0%), according to Moore Research Center, Inc. This means that the S & P 500 determines 0.25% of gold's price action/variability (Coefficient of Determination = 5% squared = 0.25%). 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% 11 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 34.81% (-59% times -59% = 34.81%) of gold's price action/variability now since the USD's negative correlation coefficient with gold is -59% as of 7-29-05. The USD determines only 1.44% of silver's price action/variability since the USD's negative correlation coefficient with silver is -12% as of 7-29-05. 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 4.73) 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 report I received via e mail from Marketocracy for the week ending 7-29-05: "JFR - Joe F. Rocks's Mutual Fund, Net Asset Value (NAV): $9.54 on 7-29 vs $9.75 on 7-22, Compliant: Yes, This past week Return: -2.13%." HUI (AMEX Gold Bugs Index) was down -2.55% last week for comparison, so JFR outperformed HUI in 14 of the past 28 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 4.60% 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 -0.88% to 25.440 on Friday 7-29 from 25.665 on 7-28 versus a -0.23% decline in the XAU on 7-29, which is a significant (0.50-1.99%) 1.11% rise in complacency (-0.88% + -0.23% = -1.11%. The XAU wall of worry shrank by -1.11%, therefore complacency rose by 1.11%) that portends weakness/a downtrend on Monday 8-1 (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 0.77570 for the August expiration on 7-29 versus at 0.81231 for the August expiration on 7-22 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 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 strength this week (but all indicators and cycle channels/trendlines (most important consideration) must be considered collectively, not in isolation. Think "system.") is the fact that NEM outperformed the XAU last week by +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 18 weeks): -1.05% vs -0.23% on 7-29, +0.21% vs -0.18% on 7-28, +1.15% vs +0.39% on 7-27, -1.42% vs -1.46% on 7-26, -1.28% vs -1.16% on 7-25.        

• 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 80,207 long futures and options contracts versus 172,186 short futures and options contracts (data as of 7-26-05).
  

• The notoriously contrarian (in terms of their trading activity) gold Speculators are correctly positioned for gold strength with 112,823 long futures and options contracts versus only 57,339 short futures and options contracts (data as of 7-26-05).

• The gold Commercial Traders sold an unusually large (> 10% decrease in long contracts) 14,585 long futures and options contracts (added 10,066, 10,022, 4733 the prior three weeks) and covered a large 13,163 short futures and options contracts (covered 16,960, 19,554, 26,665 the prior three weeks) which portends strength this week (non contrarian indicator), because the unusually large degree of long liquidation is the contrarian case short term, and the large degree of short covering also points to 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 7-26-05, 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 3899 long futures and options contracts (sold 7935, 23,682, 36,820 the prior three weeks) and covered 2223 short futures and options contracts (added 12,036, 8147 the prior two weeks) which portends strength this week (contrarian indicator), because they traded net short by 1676 futures and options contracts. 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 37,981 long futures and options contracts versus 81,704 short futures and options contracts as of 7-26-05.

• The notoriously contrarian (in terms of their trading activity) silver Speculators are correctly positioned for silver strength with 41,100 long futures and options contracts versus only 19,328 short futures and options contracts as of 7-26-05.

• The silver Commercial Traders sold a large 3715 long futures and options contracts (added 1492, 1927, 8586 the prior three weeks) and covered a large 4687 short futures and options contracts (added 549 the prior week, covered 1244, 13,971, 3899, 475 the prior four weeks) which portends strength (non contrarian indicator) this week, because they traded net long by 972 futures and options contracts. The sale of a large 3715 long futures and options contracts points to some significant weakness however. The most important consideration in timing any market is the cycle channels/trendlines.

• The silver Speculators (hedge funds and other speculators/traders) sold a large 2836 long futures and options contracts (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) 2765 short futures and options contracts (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. 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 6378 long futures and options contracts versus 22,315 short futures and options contracts as of 7-26-05. Last week they sold 11 long futures and options contracts (added 1688, 277, 232, 60, 752 the prior five weeks) and covered a large 1315 short futures and options contracts (added 687 the prior week, covered 3966 the prior week) which portends strength this week (non contrarian indicator). The most important consideration in timing any market is the cycle channels/trendlines (see chart above).
  

• The notoriously contrarian (in terms of their trading activity) USD Speculators are now incorrectly positioned for US Dollar strength (massively long) with 16,582 long futures and options contracts versus 1792 short futures and options contracts as of 7-26-05. Last week they sold a large 1041 long futures and options contracts (added 623 the prior week, sold 6568 the prior week, added 1987, 2655 the prior two weeks) and added 21 short futures and options contracts (added 376 the prior week, covered 1290 the prior week) which portends USD strength this week (contrarian indicator). 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!

-- Posted Monday, 1 August 2005 | Digg This Article