• The Commitments of Traders (COT) data as of 1-4-05 revealed that dramatic repositioning occurred . The reliable non contrarian gold Commercial Traders covered an unusually large (> 10% of the short contracts) 35,004 short futures and options contracts, the notoriously contrarian gold Speculators sold an unusually large (> 10% of the long contracts) 30,018 long futures and options contracts, and there were similar large changes in silver and the US Dollar, except for the silver Speculators.
  

• Gold hit an intermediate term cycle buy signal the week before last (see latest 3 month chart), which correctly suggested that gold stocks would soon do so as well. Since a major correction had been and still might be under way for gold (since gold tends to lag gold stocks), there's a small chance that the buy signal is a parabolic buy signal rather than a straight trendline buy signal (see latest 3 month chart for the safer straight trendline), but, given the proximity to it's long term upcycle trendline (see 1 year chart), it's very likely to be a straight intermediate term cycle buy signal. 

• A buy window opens up after a parabolic trendline buy signal (buy window means look to buy don't mechanically buy) as long as the next longer cycle, which in this case is the long term cycle, is heading up. So, even if this buy signal turns out to be a parabolic trendline buy signal for gold, one still should do well by going long now because the buy window is open on an intermediate term cycle basis and gold isn't far from it's long term upcycle trendline. As with gold/silver stocks I wouldn't chase strength on Monday 1-24, I'd wait for a significant decline to occur, probably a day or two later before buying.
  

• The report I received via e mail from Marketocracy for the week ending 1-21-05: "JFR - Joe F. Rocks's Mutual Fund, Net Asset Value (NAV): $10.48, Compliant: Yes, This past week Return: +5.61%." HUI (AMEX Gold Bugs Index) was up +3.81% for the week for comparison. My imaginary mutual fund JFR is up 4.8% since it's inception on 1-5-05. The link shows the NAV at 10.47 the last time I checked it, but their e mail said 10.48.
  

• The 10 Year T Bond yield bottomed in mid June 2003, so the 10 Year T Bond has been in a Bear Market since mid June 2003. The US is in an inflationary, rising interest rate, commodities Bull Market environment similar to the 1970s. Gold was in a Bear Market from 1980 until April 2001, or 21 years. Paper assets in the US are in a very long term downcycle/secular Bear Market, with the major US stock averages peaking/hitting very long term cycle highs in March 2000 and the 10 year T Bond peaked/hit a very long term cycle high in mid June 2003.
  

• A few words about the US economy and why the US Dollar (USD) is likely to remain in a Bear Market for a very long time, which jives with the USD's very long term downcycle since mid 2001. The US economy and stock market experienced a bubble or what my "Trade the Cycles" system calls a "very long term cycle high" in 2000, with the major US averages peaking in March of 2000. Bubbles/very long term cycle highs for the US major averages occur about every 35 years, with one occurring in 1897, 1929, the mid 1960s, and in March 2000. The US has been in a major economic bust since 2000, similar to Japan's since 1989 (The Nikkei remains dramatically below 1989 levels).
  

• President Bush's administration has flooded the system (US economy) with money via easy credit (credit card and refinancing boom), rock bottom rates, huge budget deficits (more than $600 Billion in 2004), as well as tax cuts in recent years. For example, in the third quarter of 2003 Child Credit Tax Rebate checks totaling $14 Billion accounted for about half of the economic growth during that quarter (8% or so growth which was a 1 quarter spike due to the $14 Billion in checks). Because of the major US economic bust since early 2000 massive stimulus (flood of money/US Dollars) has been used in order to achieve adequate economic growth, which has led to a USD Bear Market/very long term downcycle since mid 2001.
  

• Because most of the stimulus in recent years has been from the housing boom (rock bottom rates and easy money lending practices from the Federal Reserve Bank and lenders spurred this), mortgage refinancing, credit card lending, budget deficits, and tax cuts, an easy money policy (and massive budget deficits) will have to remain in place in the US for a very long time, because the mortgage refinancing and housing boom is over, credit card lending will be adversely affected by rising rates, and taxes can only be cut so far. A number of the major factors behind the huge economic stimulus in the US in recent years will or already have declined dramatically. What this means is that huge budget deficits, an easy money policy (maybe even easier in order to offset rising short and long term interest rates and the dramatic decline in the other stimulus factors), and possibly more tax cuts probably will be needed in order to stave off a recession in the US.
  

• The alternative to massive monetary stimulus in the US in recent years  is to have a very long recession (basically a depression) which, because the US is the world's growth engine (the consumer), would have drastic worldwide ripple effects that would in turn have a very long term effect ("ripple back") on the US. The magnitude of the bubble in the US in 2000 (like the Tulip mania in Holland in the 1600s) required drastic action and should result in the US Dollar remaining in a Bear Market/very long term downcycle for a very long time. Other than understanding the big picture/very long term cycle the fundamentals are of little if any use in market timing, unless you happen to know that a particular economic report will be much better or worse than expected.
  

• My "Trade the Cycles" system doesn't use fundamentals at all, but one should understand the underpinnings of the very long term downcycle in the US economy, the major US stock indices and the US Dollar, and, why gold/silver stocks should be a great investment for a very long time (until about 2018 based on past cycles, gold was in a very long term downcycle from 1980 until April 2001). At 20%/year one arrives at a ten year price target of $2631.50 for gold: $425ish as of 1-21-05 - $510 in 2005-2006 - $612  in 2007 - $734.40 in 2008 - $881.28 in 2009 - $1057.54 in 2010 - $1269.05 in 2011 - $1522.86 in 2012 - $1827.43 in 2013 - $2192.92 in 2014 - $2631.50 in 2015.
  

• Another reason why the US Dollar (USD) will probably continue to decline for years to come? The US is the only country to my knowledge that pays it's foreign debts in it's own currency. Therefore, by dramatically devaluing the USD, the US greatly reduces it's foreign debt load.

• As one can see in gold's 1 year chart, it's long term upcycle trendline remains intact. Gold's biggest percentage decline occurred since late December whereas gold stocks biggest percentage decline occurred before the December 8, 2004 short term cycle low, which is another example of the metal lagging the stocks.

• The next 6 months or more, following the major bottom that occurred on 1-6-05 for HUI/NEM and on 1-18-05 for the XAU, should be the sharply rising segment of the long term upcycle that began on 5-10-04, similar to the April 2003 to December 2003/January 2004 timeframe in the previous long term upcycle for HUI, NEM, and the XAU. Please see the 5 year NEM chart dated 1-7-05 which shows that NEM was recently near the bottom of it's very long term upcycle/Bull Market channel (the last bar should be closer to the bottom than it's shown since NEM's low was 41.38 on 1-7-05) and it's long term upcycle should soon "go parabolic" in similar fashion to what occurred in the prior long term upcycle. This means that the next 6-12 months should be even better than the previous 6 months, and probably dramatically better. Long term cycle highs well above the previous ones should occur (at 258.60 for HUI on 12-2-03, at 50.28 for NEM on 12-2-03, and at 113.41 for the XAU on 1-6-04), based on well established cyclic behavior (see 4-5 year charts).

• Before I thought 12-8-04 was a major bottom my intermediate term cycle low targets for HUI and the XAU were 190-200 and 90-95 based on their long term upcycle trendlines, as discussed in my first update in December 2004. HUI and the XAU bottomed near their long term upcycle trendlines, so the target ranges were good ones and cycles proved to be an effective market timing tool as usual. The most important consideration in timing any market is the cycle channels/trendlines.

• Going back to the prior long term upcycle for NEM that began on 7-26-02 (see 5 year chart dated 1-7-05) one can see that NEM was relatively flat in the second half of 2002 and in early 2003, yet HUI still rose about 170% in it's long term upcycle from 7-26-02 until 12-2-03. HUI, NEM, and the XAU were relatively flat during the first 8 months of their prior long term upcycle (from 7-26-02 until the end of March 2003), as can be seen in their 4 and 5 year charts. In April of 2003 the prior long term upcycle went parabolic (the rate of ascent increased dramatically), which is what I think will happen after this recent major intermediate term cycle low. HUI, NEM, and the XAU are likely to soon enter the steep part of their long term upcycle curves, now that the major bottom is in.

• NEM has an upside gap to fill just below 44.50.
  

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

• The US Dollar (USD) is back in an intermediate term upcycle as can be seen in the latest USD chart. The USD's intermediate term upcycle should be limited by it's very long term downcycle/Bear Market trendline, currently a bit below 85.  

• An important factor is the fact that the US Dollar's very long term downcycle trendline (see chart) is converging with major support in the 80 area, so a major breakdown in the USD is likely in the not too distant future, and will probably occur in this long term upcycle (that's likely to last another 6-12 months).
  

• Keep in mind that very long term upcycles (secular Bull market in gold/silver stocks) began in October 2000 for NEM/XAU and in November 2000 for HUI. There are very long term cycle charts below. An important development portending increased strength in gold/silver stocks is the fact that the very long term upcycle trendlines for HUI, NEM, and the XAU are now in a sharper uptrend than they were during the first couple of years of this gold/silver stock Bull Market (see 5 year HUI chart dated 12-17-04, 5 year NEM chart dated 8-19-04, and the 5 year XAU chart dated 10-20-04). Gold began a very long term upcycle in April 2001 and silver did in November 2001.
  

• An important factor to keep in mind is NEM's major resistance in the 50 area. NEM put in a double top (long term cycle high) at 50.28 on 12-2-03 and at 50.04 on 1-6-04 and recently put in a major top at 49.98 on 11-17-04. Therefore, nimble traders may get some opportunities when NEM attempts to break through major resistance in the 50 area. Since NEM is a reliable lead indicator, a clear failure to break above 50 will be a good signal to look to take short term cycle profits and maybe sell short a bit.
  

• Buy and hold for most investors/traders (until the long term cycle high in probably about 6-12 months) makes a lot of sense unless you're a nimble trader. Nimble traders have a good chance (using my "Trade the Cycles" system) of increasing returns by trading intermediate term cycles that typically last 1 to 3 months for an entire cycle up and down. Most traders/investors are much better off buying and holding long term upcycles.
  

• XAU Implied Volatility rose +0.62% to 26.760 on Friday 1-21 from 26.595 on 1-20 versus a +2.08% rise in the XAU on 1-21, which is a sharp (2-2.99%) 2.70% rise in fear (+0.62% + +2.08% = +2.70%. The XAU wall of worry grew by 2.70%, therefore fear rose by 2.70%) that portends strength/an uptrend on Monday 1-24 (fear is usually contrarian and therefore normally portends strength, until it reachs an unusually large level (> 6% increase) where it becomes non contrarian). That strength/uptrend could follow a gap down at the open. XAU Implied Volatility tends to indicate a trend/tone rather than necessarily up or down for that session. The XAU Put/Call Ratio is another very important indicator that may disagree with XAU Implied Volatility. These indicators must be used in concert with cycle channels/trendlines (very long term, long term, intermediate term, and short term).

• The XAU Put/Call Ratio is at 1.29586 for the February expiration as of 1-21. 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 (but all indicators and cycle channels/trendlines must be considered collectively, not in isolation. Think "system.") in the XAU on Monday 1-24 is the fact that NEM outperformed the XAU since 1-6-05 by +0.82%, which is a good sign: 1-21 NEM +1.77% vs +2.08% for the XAU, 1-20 NEM -1.32% vs -0.44% for the XAU, 1-19 NEM -0.33% vs -0.52% for the XAU, 1-18 NEM +1.41% vs +0.83% for the XAU, 1-14 NEM -0.99% vs -0.92% for the XAU, 1-13 NEM -1.10% vs -0.95% for the XAU, 1-12 NEM +0.78% vs +0.01% for the XAU, 1-11 NEM +1.87% vs +0.91% for the XAU, 1-10 NEM +0.39% vs +0.81% for the XAU, 1-7 NEM -0.24% vs +0.41% for the XAU, 1-6 NEM -0.17% vs -0.35% for the XAU.                     

• There's an early warning system in place! The NEM Lead Indicator chart dated 1-21-05 below (first chart) reveals that NEM underperformed the XAU late last week (gap narrowed), which portends weakness early this week, after some likely strength on Monday. The NEM Lead Indicator chart dated 1-21-05 below (first chart) reveals that NEM outperformed early last week, correctly portending strength late last week. 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) and began on July 26, 2002. 
  

• The negative correlation between gold and the USD is now very high. It's -NA% on 1-21 (-93% on 1-14) for the past 180 days for gold, according to Moore Research Center, Inc. For silver the negative correlation with the USD is -NA% on 1-21 (-71% on 1-14) for the past 180 days. Silver's negative correlation is much less than gold's because it's more of an industrial metal than gold is, hence it has a more positive correlation with US economic strength and a strong US Dollar.

• The reliable non contrarian (in terms of their trading activity) gold Commercial Traders are short gold. They are clearly positioned for gold weakness with only 124,695 long futures and options contracts versus 226,773 short futures and options contracts (data as of 1-18-05).
  g

• The notoriously contrarian (in terms of their trading activity) gold Speculators are correctly positioned for gold strength with 108,842 long futures and options contracts versus only 43,838 short futures and options contracts (data as of 1-18-05).

• The gold Commercial Traders sold 2369 long futures and options contracts and covered 8344 short futures and options contracts which portends strength this week (non contrarian indicator), but the sale of 2369 long futures and options contracts portends some weakness. The most important consideration in timing any market is the cycle channels/trendlines (see charts below) and keep in mind that the data is as of 1-18-05 for all the COT data in this update, 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 1615 long futures and options contracts and added an unusually large (> 10% of the short contracts) 4549 short futures and options contracts which portends strength this (contrarian indicator), but the unusually large degree of shorting points to some weakness (non contrarian case). The most important consideration in timing any market is the cycle channels/trendlines (see charts below). 

• The reliable non contrarian (in terms of their trading activity) silver Commercial Traders are short silver. They are clearly positioned for silver weakness with only 25,089 long futures and options contracts versus 81,537 short futures and options contracts as of 1-18-05.

• The notoriously contrarian (in terms of their trading activity) silver Speculators are correctly positioned for silver strength with 42,199 long futures and options contracts versus only 9187 short futures and options contracts as of 1-18-05.

• The silver Commercial Traders added 1795 long futures and options contracts and added 1156 short futures and options contracts which portends strength (non contrarian indicator) this week, but the addition of 1156 short futures and options indicates they expect some weakness. The most important consideration in timing any market is the cycle channels/trendlines (see charts below).

• The silver Speculators (hedge funds and other speculators/traders) added 97 long futures and options contracts and added 565 short futures and options contracts which portends strength this week (contrarian indicator). The most important consideration in timing any market is the cycle channels/trendlines (see charts below).

• The reliable non contrarian (in terms of their trading activity) USD Commercial Traders are clearly positioned for US Dollar strength with 9319 long futures and options contracts versus only 3467 short futures and options contracts as of 1-18-05. Last week they sold 198 long futures and options contracts and covered 563 short futures and options contracts which portends (probably modest) USD strength this week (non contrarian indicator), but the sale of 198 long futures and options contracts points to some weakness. The week before last they sold an unusually large (> 10% of the long contracts) 3356 long futures and options contracts. Three weeks ago the USD Commercial Traders sold an unusually large (> 10% of the long contracts) 4626 long futures and options contracts. The most important consideration in timing any market is the cycle channels/trendlines (see charts below).
  

• The notoriously contrarian (in terms of their trading activity) USD Speculators are correctly positioned for US Dollar weakness with only 3888 long futures and options contracts versus 10,232 short futures and options contracts as of 1-18-05. Last week they sold an unusually large (> 10% of the long contracts) 636 long futures and options contracts and added 179 short futures and options contracts which portends USD strength this week (contrarian indicator), but the unusually large degree of long liquidation points to some weakness (non contrarian case). The most important consideration in timing any market is the cycle channels/trendlines (see charts below). 

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

• I've created a Joe F. Rocks imaginary mutual fund at Marketocracy that will trade gold/silver stocks and maybe also precious metals via Exchange Traded Funds (ETF) like GLD (new gold ETF) using my "Trade the Cycles" system. The Fund Manager name should say Joe Ferrazzano not  "joefrocks." I bought "en masse" on 1-5-05 and was more than 90% invested on that date, so I got in shortly before HUI hit a major bottom very early on 1-6-05. This will be a way of establishing an independently calculated track record. I'll track it's performance weekly in these updates, but the link above updates the fund share price/NAV the day after each session I believe. My current holdings are ABX (Barrick Gold), AGT (Apollo Gold), CDE (Coeur D' Alene, mostly silver), DEZ (Desert Sun, mostly gold), FCX (Freeport McMoran, gold/copper), HL (Hecla Mining, a gold/silver mix but silver at heart), GG (Goldcorp, mostly gold), GLG (Glamis Gold), GSS (Golden Star, mostly gold), MDG (Meridian, mostly gold), NEM (Newmont Mining, mostly gold), NG (Novagold), NTO (Northern Orion, mostly gold), PAAS (Pan American Silver), SIL (Apex Silver), SSRI (Silver Standard Resources), and WTZ (Western Silver). 

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

Joe F. Rocks!