SPX (S & P 500) Weakness Led To Gold/Silver Stock Weakness Today

SPX (S & P 500) has trended down since late last Wednesday, lagging the huge -$16.920 Billion drop in Federal Reserve Bank Credit in the week ending 1-11-06. Major upcycle (since 5-16-05) Elliot Wave 3 cycle highs appear to have occurred yesterday for HUI/NEM/XAU which are important though not major/final cycle highs. Today's Fed Credit so far is a miniscule $2.25 Billion Repo. Federal Reserve Bank Credit appears to be a very reliable short term cycle indicator (based on backtesting) when it has a substantial change, and, last week was a huge weekly decline which correctly pointed to substantial weakness in gold/silver stocks this week. Index fund traders have much less ammo now. A very sharp decline in gold/silver stocks has begun that probably is the major upcycle's (since 5-16-05) Elliot Wave 4 down. See http://www.joefrocks.com/GoldStockCharts.html for HUI and NEM's latest 1 year charts that show the Elliot Wave Points.

NEM is outperforming the XAU by a wide margin of +0.70% right now, after underperforming by -1.30% yesterday, and NEM/XAU have upside gaps created at the open that may get filled (see 5 day chart at link below). NEM is a component of SPX which is probably why it is such a reliable lead indicator for gold/silver stocks. XAU Implied Volatility and the XAU Put/Call Ratio both point to weakness today: http://finance.yahoo.com/q/ta?s=%5Exau&t=5d&l=off&z=l&q=b&p=&a=m26-12-9%2Cp12%2Cfs%2Cw14&c=

NEM has downside gaps to fill at 57.96 from 1-13, at 56.66 from 1-6, at 53.40 from 1-3, at 51.59 from 12-28, at 50.45 from 12-22, and at 48.75 from 12-7, and, the XAU has downside gaps at 137.59 from 1-13, at 135.39 from 1-6, at 128.03 from 1-3, at 124.36 from 12-28, and at 122.49 from 12-22. Often cycle highs or lows will occur shortly after gaps get filled, so one needs to track gaps closely. If gaps don't get filled that can be a bearish or bullish sign, as occurred recently when NEM twice closely approached (daily cycle lows at 48.88 and 48.89) but didn't fill it's downside gap at 48.75, then the recent explosive rally occurred.

http://finance.yahoo.com/q/ta?s=%5EGSPC&t=5d&l=off&z=l&q=b&p=&a=m26-12-9,m26-12-9,p12,m26-12-9,p12,fs,m26-12-9,p12,fs,w14&c=NEM,%5EXAU,%5EHUI SPX drives index funds which have a profound affect on the short term/weekly and monthly movements of many sectors, including gold/silver stocks. Rapid very modest % moves in SPX cause rapid significant moves in NEM and other gold/silver stocks in the many indices affected by SPX. The largest traders of NEM and other gold/silver stocks found in the various indexes are index fund traders, AND, they tend to trade at THE SAME TIME or nearly so, which is huge. The cycles are vastly different for gold/silver stocks and SPX since gold/silver stocks are in a very long term upcycle since Oct/Nov 2000 and SPX is in a very long term downcycle since March 2000.

XAU Implied Volatility rose +7.89% to 36.230 on Tuesday 1-17 from 33.580 on 1-13 versus a +0.00% rise in the XAU on 1-13, which is an unusually large (>6%) +7.89% rise in fear (+7.89% + +0.00% = +7.89%. The XAU wall of worry grew by +7.89%, therefore fear rose by +7.89%) that portends weakness/a downtrend during part of Wednesday 1-18's session.

The XAU Put/Call Ratio fell a significant (0.50-1.99%) -0.54% today to 1.09869 from 1.10471 on 1-17 which portends some weakness today because it's a significant (0.50-1.99%) rise in complacency.

The latest COT data (as of 1-10-06) is bearish short term since the gold Commercial Traders traded an unusually large long position and the gold Speculators traded an unusually large short position, both of which portend weakness for at least part of this week. The data is three days old when released. The gold Commercial Traders added an unusually large (> 10% increase in long contracts) 13,289 long futures and options contracts (added the prior week, sold 1381, 8157 the prior two weeks, added 11,405 the prior week, sold 14,042 the prior week) and added 4626 short futures and options contracts (added 3299 the prior week, covered 2036 the prior week, added 4202, 2623 the prior two weeks) which portends weakness this week (non contrarian indicator), because the unusually large long trade is a short term contrarian indication and the significant short selling also points to some weakness. The gold Speculators (hedge funds and other speculators/traders) added 2975 (added 1521 the prior week, sold 3988, 5112, 19,247 the prior three weeks, added 9102 the prior week) long futures and options contracts and added an unusually large (> 10% increase in short contracts) 9445 (added 5824 the prior week, covered 1535, 7432, 8720 the prior three weeks) short futures and options contracts which portends weakness this week (contrarian indicator), because the unusually large short selling is a short term non contrarian indication. The most important consideration in timing any market is the cycle channels/trendlines (see charts).

See http://www.joefrocks.com/TradetheCycles.html for the weekly update. Scroll down a few pages past the major averages work to see the gold/silver stock work. See http://www.joefrocks.com/GoldStockCharts.html for all the charts. My home page is http://www.JoeFRocks.com/ I hope you'll take the time to e mail your friends re this Blog and my site/work/system. This will help to keep my work free, because the more visitors I get the more advertising $ I make. I have a long way to go but have made significant progress in recent months. Thank you.