• The gold COT (Commitments of Traders) data points to weakness followed by strength this week. Gold hit an Elliot Wave point C minor intermediate term cycle low last week, but it's spike move should correct substantially this week, similar to what should occur for gold/silver stocks. The non contrarian gold Commercial Traders correctly engaged in massive short covering last week (45,886 short futures and options contracts covered, data as of 8-30-05) and made a respectable long trade of 3371 futures and options contracts, while the gold Speculators blundered as usual and sold a massive 45,185 long futures and options contracts near the minor intermediate term cycle low (data as of 8-30-05). The respectable long trade by the gold Commercial Traders  points to significant strength following a likely plunge/short term cycle low early this week. A 2% follow through minor intermediate term cycle buy signal occurred for gold last week.
  

• The silver COT data points to weakness followed by strength this week. The silver Commercial Traders made an unusually large long trade and engaged in an unusually large degree of short covering, which is a great sign on an intermediate term cycle basis (weeks/months), but expect substantial weakness early this week followed by substantial strength later in the week. The silver COT data is more bullish than gold's, once short term cycle lows occur probably early this week, because the long trade made by the silver Commercial Traders was larger than that made by the gold Commercial Traders, and, one has to keep in mind that the gold Commercial Traders long position is about twice that of the silver Commercial Traders, so, the fact that the silver Commercial Traders made a larger long trade clearly indicates that silver should outperform gold following likely substantial weakness early this week.        

• The XAU Put/Call Ratio fell substantially last week from 1.02491 (September expiration) on 8-26 to 0.85337 (September expiration) on 9-2, which is a substantial rise in complacency (the wall of worry shrank substantially) that portends substantial weakness this week until a short term cycle low occurs. Also, the fact that the NEM Lead Indicator was bearish last week (NEM underperformed the XAU last week by -1.32%) portends substantial weakness this week until a short term cycle low occurs. XAU Implied Volatility points to weakness on Tuesday 9-6. XAU Implied Volatility rose +9.26% to 25.770 on Friday 9-2 from 23.585 on 9-1 versus a -0.14% decline in the XAU on 9-2, which is an unusually large (> 6%) 9.12% rise in fear (+9.26% + -0.14% = +9.12%. The XAU wall of worry grew by +9.12%, therefore fear rose by 9.12%) that portends weakness/a downtrend on Tuesday 9-6 (fear is usually contrarian, therefore normally portends strength, 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 (or XAU Put/Call Ratio) tends to indicate a trend/tone rather than necessarily a simplistic up or down session. Cycles are the primary market timing consideration.
  

• 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.
  

• Williams %R is for HUI (-33.40)/NEM (-26.80)/XAU (-18.00) on 9-2-05 (see latest charts). If it hits an oversold level well below -80 (near -100), as occurred last week, that's a reliable indication to look to buy, which doesn't mean you mechanically buy, but that you probably will buy very soon or you may start buying (in 2 or 3 stages). The converse is of course true for overbought levels at or above -20, but the most important consideration by far is cycle channels/trendlines. Indicators and timing tools are used for finetuning buy/sell decisions after cycle trendline buy/sell signals suggest it's time to buy/sell (see charts above, most of you should probably be holding until a long term cycle sell signal occurs in 6 to 12 months).

• An important bullish development is that gold's major intermediate term upcycle trendline since early February has turned up/increased in strength (see 1 year chart above). Gold hit a 2% follow through minor intermediate term cycle buy signal last week (see 1 year chart above). There's a small chance that last week's cycle high is actually an Elliot Wave point B cycle high and that the ultimate point C minor intermediate term cycle low has yet to occur, given that the likely minor intermediate term cycle low occurred well above gold's major intermediate term upcycle trendline since early February 2005 (see 1 year chart above).
  

• The USD should remain below 88.20, which is where the likely major intermediate term downcycle trendline is (see 1 year chart above). The USD appears to have put in a major intermediate term cycle high, because it's parabolic uptrendline has broken down (see 1 year chart above). A 5% follow through sell signal is required to confirm that's the case, but given that the USD has lower volatility than most markets, probably 3% follow through makes sense for major buy/sell signals. The dramatic spike also suggests that a major cycle high may have occurred. The US Dollar only determines 19.36% (-44% times -44% = 19.36%) of gold's price action/variability now since the USD's negative correlation coefficient with gold is -44% as of 9-2-05.
  

• You must chart the cycles for the stocks you trade/invest in, because they can be radically different than those of HUI, NEM, and the XAU. For example, CDE and SIL just hit long term cycle lows in May 2005 versus HUI, NEM, and the XAU doing so on May 10, 2004.
  

• It can take a while for a major upcycle's trendline to establish itself. HUI's major upcycle trendline since May 16, 2005 is just becoming established now. HUI is more volatile and therefore tends to have more uncertainty than NEM and the XAU. This is one of the good reasons to look at three major upcycles (HUI, NEM, and the XAU) rather than one. Also, NEM, being a reliable lead indicator and the largest market cap component of HUI and the XAU, has the most important cycles. The long term upcycle's (since May 10, 2004) rising bottoms trendline didn't exist until May 16, 2005's major intermediate term cycle lows (HUI, NEM, and the XAU. See first chart above and the HUI chart dated August 5). It took slightly over a year to establish itself and ended up being very flat, probably because the long term cycle lows occurred well above the very long term upcycle trendline (see top chart above). The very important point I'm trying to make is to understand that markets do reliably experience cycles (look at the charts above) even though it can take a while for a cycle's trendline to clearly establish itself, which can lead to surprises with shorter cycles.

• USGL.OB (US Gold Corp) experienced a dramatic rebound last week (see second chart from bottom in the group above), and, as discussed last week, appears to be doing an Elliot Wave A, B, C correction en route to filling it's downside gap below 1.00. USGL.OB (US Gold Corp) looks interesting both technically and because this mining firm is now run by ex Goldcorp CEO Rob McEwen. USGL.OB is more than 10% owned by Novagold Resources (NG). It has a downside gap below 1.00 that will probably get filled in the near future (see second chart from bottom above). The stock recently peaked at 2.20ish. The stock was extremely oversold two weeks ago and rebounded as expected, probably experiencing an Elliot Wave A, B, C correction en route to filling it's downside gap below 1.00. You have to perform your own due diligence, I'm not in the business of recommending stocks, but this one is worth looking at is what I'm saying. The stock is probably a short now technically, because it has been in an intermediate term downcycle since mid August (see second chart from bottom above), but it's extremely volatile and may have hit a minor intermediate term cycle low in late August, but it was probably an Elliot Wave point A short term cycle low en route to the ultimate point C minor intermediate term cycle low that would fill the gap below 1.00. 9-1's short term cycle high was probably the Elliot Wave point B short term cycle high. USGL.OB (US Gold Corp) is simply too risky to trade or invest in right now, until it clearly breaks it's intermediate term downcycle trendline since mid August (see second chart from bottom above), or fills it's downside gap below 1.00.
  

• 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. "Trade the Cycles" is a relatively new system (began in 2003) that only reached a well developed state this year. Major buy/sell signal requirements were improved this year.
  

• The major intermediate term upcycle trendlines since May 16, 2005 for HUI, NEM, and the XAU (see charts above, 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 (top chart above) 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).
  

• 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!
  

• 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.
  

• 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 XAU 2 year chart dated 5-16-05 above shows the Elliot Wavesque 1, 2, 3, 4, 5 cycle structure of the major intermediate term upcycle from 5-10-04 until 11-17-04 as well as the A, B, C correction from 11-17-04 until 5-16-05. The fact that there are predictable cyclical patterns for gold/silver stocks and most if not all markets is well established. The major caveat being that one must know what the longer cycles are doing in order to time shorter cycle timeframes. The predictability of the long term cycles uptrend obviously comes from the very long term upcycle since late 2000 and knowing that very long term upcycles (and downcycles) tend to last about 17.2 years. Gold's very long term downcycle lasted 21 years, from 1980 until April 2001.
  

• Gold hit a major intermediate term cycle buy signal (see 1 year chart above) in June 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.

• Major intermediate term cycle lows 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.
  

• Looking at the top chart above, the 5 year HUI chart showing the 6 long term cycle 5% follow through buy/sell signals in the gold/silver stock very long term upcycle, one sees that all 6 long term cycle buy/sell signals correctly indicated that the long term cycle high or low was in (the NEM Lead Indicator is also needed when a potential long term cycle low occurs well above the very long term upcycle trendline as discussed previously). The probability that coincidence/pure luck led to that outcome is only 1.56% which is 50% raised to the sixth power. So, assuming that a very long term upcycle remains in effect (they last about 17.2 years on average), there's a very high probability that long term cycle buy/sell signals will work in the future. I can provide countless examples for shorter cycle timeframes where the parabolic trendline buy/sell signals worked every time. The caveat is that one must know what the longer cycles are doing (where their trendlines are) or you might use the wrong trendline and get an erroneous buy/sell signal.
  

• A new indicator is Chaikin Money Flow (CMF) for reliable lead indicator Newmont Mining (NEM). Money flow is a primary fundamental indicator. NEM CMF turning negative tends to correspond closely with the beginning of sharp downcycles. Please see the NEM chart above dated 9-2-05. NEM's CMF closed at -0.11 on 9-2-05. Given that a CMF level of -0.25 for NEM reflects strongly negative CMF, then -0.11 is significantly negative CMF.
  

• 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. The correlation coefficient is -44% on 9-2 (-47% on 8-26) for the past 180 trading days for gold, according to Moore Research Center, Inc. For silver the negative correlation coefficient with the USD is -3% on 9-2 (+2% on 8-26) 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 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 only determines 19.36% (-44% times -44% = 19.36%) of gold's price action/variability now since the USD's negative correlation coefficient with gold is -44% as of 9-2-05. The USD determines only 0.09% of silver's price action/variability since the USD's negative correlation coefficient with silver is -3% on 9-2-05. 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 positive correlation coefficient between gold and the S & P 500 is +14% for the past 180 trading days (positive correlation coefficient with silver is +10%), according to Moore Research Center, Inc. This means that the S & P 500 determines 1.96% of gold's price action/variability (Coefficient of Determination = 14% squared = 1.96%). 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% 16 weeks ago). The next bullet discusses the Coefficient of Determination.
  

• The Gold:XAU Ratio (currently at 4.49) may become a third major buy/sell signal signal criterion, along with 5% follow through and a clearly bullish/bearish NEM Lead Indicator. Per Myles Zyblock, Chief North American Institutional Strategist at RBC Capital Markets, when it's above 5.0 (12% of the time the past 22 years) the average annual one-year holding period return for stocks in the XAU has been +38.4% and in only one instance was there a loss. When it's below 3.0 (5% of the time the past 22 years) the average annual one-year holding period return for stocks in the XAU has been -24.3% with no instances of an up year. As a stand alone indicator, at least for trading purposes, the Gold:XAU Ratio probably isn't highly useful because obviously both gold and the XAU can fall 10% or more in tandem after reaching 5.0 or rise 10%+ after reaching 3.0. However, I need to research/backtest this. 5.25 or even 5.50 is probably a better criterion.
  

• The report I received via e mail from Marketocracy for the week ending 9-2-05: "JFR - Joe F. Rocks's Mutual Fund, Net Asset Value (NAV): $10.06 on 9-2 vs $9.57 on 8-26, Compliant: Yes, This past week Return: +5.08%." HUI (AMEX Gold Bugs Index) was up +4.41% last week for comparison, so JFR outperformed HUI in 15 of the past 33 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 up 0.60% since it's inception on 1-5-05.
  

• XAU Implied Volatility rose +9.26% to 25.770 on Friday 9-2 from 23.585 on 9-1 versus a -0.14% decline in the XAU on 9-2, which is an unusually large (> 6%) 9.12% rise in fear (+9.26% + -0.14% = +9.12%. The XAU wall of worry grew by +9.12%, therefore fear rose by 9.12%) that portends weakness/a downtrend on Tuesday 9-6 (fear is usually contrarian, therefore normally portends strength, 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 0.85337 for the September expiration on 9-2 versus at 1.02491 for the September expiration on 8-26 versus at 0.89710 for the September expiration on 8-19 versus at 0.73494 for the August expiration on 8-12 versus at 0.81863 for the July expiration on 7-1 versus at 0.91027 for the July expiration on 6-24 versus at 0.76954 for the June expiration on 6-17 versus at 0.87064 for the June expiration on 6-10 versus at 0.80155 for the June expiration on 6-3 versus at 0.55895 (May expiration) on 5-19 versus at 1.13583 (May expiration) on 4-22. The XAU Put/Call Ratio was at 0.65704 for the final January expiration value as of 1-21. The XAU Put/Call Ratio was at 0.79348 for the final December expiration as of 12-17-04. The XAU Put/Call Ratio was at 1.03065 for the final November expiration value as of 11-19-04. The XAU Put/Call Ratio was at 0.85989 for the final October expiration value as of 10-15. If it rises 6% or less it portends strength following likely early weakness (indicated by XAU Implied Volatility). If it falls 6% or less it portends weakness. At unusually large greater than 6% moves the XAU Put/Call Ratio becomes non contrarian, so a greater than 6% rise portends weakness (unusually large rise in fear) and a greater than 6% decline portends strength (unusually large rise in complacency).
  

• A major indicator (NEM Lead Indicator) portending 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 -1.32% (-0.40%, +0.98%, +0.52%, -0.08%, +0.26%, +0.81%, -0.91%, -1.00%, -2.86%, -0.38%, +0.09%, -0.39%, -0.72%, -0.69%, -1.87%, +0.45%, -2.15%, -1.17%, +0.10%, +1.83%, +0.08%, +0.44%, and +0.97% the prior 23 weeks): -0.29% vs -0.14% on 9-2, +3.41% vs +3.53% on 9-1, +1.78% vs +2.51% on 8-31, -1.07% vs -1.19% on 8-30, +0.28% vs +0.72% on 8-29.        

• The reliable non contrarian (in terms of their trading activity) gold Commercial Traders are short gold. They are clearly positioned for gold weakness (largely because of hedging) with only 73,833 long futures and options contracts versus 225,949 short futures and options contracts (data as of 8-30-05). The Commercial Traders (typically) correctly begin to take substantial profits (and sell short) as a cycle rolls over/weakens (following cycle parabolic trendline sell signals) while the Speculators tend to overshoot when making the various trading decisions (buying, selling, shorting, short covering).

• The notoriously contrarian (in terms of their trading activity) gold Speculators are correctly positioned for gold strength with 161,487 long futures and options contracts versus only 41,210 short futures and options contracts (data as of 8-30-05).

• The gold Commercial Traders added 3371 long futures and options contracts (sold 243 the prior week, added 4653 the prior week, sold 5908, 8248, 14,585 the prior three weeks) and covered an unusually large (huge) (> 10% decrease in short contracts) 45,886 short futures and options contracts (covered 281 the prior week, added 48,207, 45,387, 6337 the prior three weeks) which portends weakness this week (non contrarian indicator), because the unusually large degree of short covering is the contrarian case short term, but the respectable long trade points to some strength as does the huge degree of short covering. 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 8-30-05, 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 (huge) (> 10% decrease in long contracts) 45,185 long futures and options contracts (sold 2562 the prior week, added 41,184, 48,891, 6406 the prior three weeks, sold 3899, 7935, 23,682, 36,820 the prior four weeks) and covered 744 short futures and options contracts (covered 4233 the prior week, added 400 the prior week, covered 4094, 7457, 2223 the prior three weeks, added 12,036, 8147 the prior two weeks) which portends weakness this week (contrarian indicator), because the unusually large degree of long liquidation is the non contrarian case short term. The huge degree of long liquidation indicates that a minor intermediate term cycle low probably occurred. The most important consideration in timing any market is the cycle channels/trendlines (see chart above). 

• The reliable non contrarian (in terms of their trading activity) silver Commercial Traders are short silver. They are clearly positioned for silver weakness (largely because of hedging) with only 36,504 long futures and options contracts versus 70,178 short futures and options contracts as of 8-30-05. 

• The notoriously contrarian (in terms of their trading activity) silver Speculators are correctly positioned for silver strength with 43,183 long futures and options contracts versus only 32,236 short futures and options contracts as of 8-30-05.

• The silver Commercial Traders added an unusually large (> 10% increase in long contracts) 5451 long futures and options contracts (sold 4476, 838 the prior two weeks, added 1556 the prior week, sold 3170, 3715 the prior two weeks) and covered an unusually large (> 10% decrease in short contracts) 10,282 short futures and options contracts (covered 4610, 4503, 2360 the prior three weeks, added 10,229 the prior week, covered 4687 the prior week, added 549 the prior week) which portends weakness (non contrarian indicator) this week, because the unusually large net long trades are 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) added a large 2743 long futures and options contracts (added 143 the prior week, sold 2178, 1041 the prior week, added 2416 the prior week, sold 2836 the prior week, added 1889 the prior week) and added an unusually large (huge) (> 10% increase in short contracts) 16,580 short futures and options contracts (covered 262 the prior week, added 3067, 3263 the prior two weeks, covered 9740, 2765 the prior two weeks) which portends weakness this week (contrarian indicator), because 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 with 6806 long futures and options contracts versus 10,420 short futures and options contracts as of 8-30-05. Last week they sold an unusually large (> 10% decrease in long contracts) 3161 long futures and options contracts (added 140, 1260 the prior two weeks, sold 486 the prior week, added 2674 the prior week) and covered an unusually large (> 10% decrease in short contracts) 1351 short futures and options contracts (added 655 the prior week, covered 8222 the prior week, added 249 the prior week, covered 3226, 1315 the prior two weeks) which portends strength this week (non contrarian indicator), because they traded net short by an unusually large 1810 futures and options contracts which is the contrarian case short term. 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 with 6287 long futures and options contracts versus 2328 short futures and options contracts as of 8-30-05. Last week they added 577 long futures and options contracts (added 632 the prior week, sold 8064 the prior week, added 1359 the prior week, sold 4799, 1041 the prior two weeks) and covered an unusually large 928 (> 10% decrease in short contracts) short futures and options contracts (added 300, 287, 232, 644, 21, 376 the prior six weeks, covered 1290 the prior week) which portends USD strength this week (contrarian indicator), because the unusually large degree of short covering is the non contrarian case short term, but the large 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).
  

• FREE COT (Commitments of Traders) Charts (see link) reveal that the Commercial Traders generally know what they're doing and the Speculators don't. The Commercial Traders tend to be near net short extremes near major tops and near net long extremes near major bottoms, thus making them non contrarian indicators most of the time. The Speculators tend to do just the opposite and are contrarian indicators most of the time.

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

• Cycle channels and trendlines are the primary market timing consideration (other tools/indicators are great for finetuning), except the NEM Lead Indicator is (really only) needed for major buy signals when the potential major cycle low occurs well above the next longer cycle's trendline, such as occurred on May 10, 2004 when long term cycle lows occurred for HUI, NEM, and the XAU well above their very long term upcycle trendlines in place since late 2000 (see top chart above). Since May 16, 2005's major intermediate term cycle low occurred right at the very long term upcycle trendline for the XAU (see 5 year chart dated 7-12-05), the NEM lead Indicator wasn't really required (in addition to the 5% follow through requirement), but given how long and brutal the (major intermediate term downcycle from 11-17-04 until 5-16-05) correction was we needed all the confidence we could get. In other words, if HUI, NEM, and the XAU bounce dramatically at their Bull Market/very long term upcycle trendlines or long term upcycle trendlines and 5% or more follow through occurs after breaking their major downcycle trendlines, that strongly suggests that the next longer cycle remains in effect and that a major buy signal has occurred.
  

• The 5% follow through requirement combined with the NEM Lead Indicator, the two new major buy/sell signal requirements, would have weeded out all six important cycle lows that occurred prior to 5-16-05 in the major correction (from 11-17-04 until 5-16-05), and, correctly indicated that 5-16-05 was a major intermediate term cycle low. So, the two new major buy/sell signal requirements worked seven consecutive times and there's only a 0.78% chance that result was due to pure luck (50% raised to the seventh power).

• My system/work is NOT about me making educated guesses and calling bottoms, even though I (mistakenly) did that in the major correction from 11-17-04 until 5-16-05 for HUI, NEM, and the XAU, partly for reasons such as HUI having, until 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 Sunday, 4 September 2005 | Digg This Article