Buckle Up! SPX (S & P 500) Is Dragging Gold/Silver Stocks Down
Because SPX drives index fund trading. When SPX goes down that drags other indexes down, both those with and without common components, so it's not just SPX components NEM/FCX that go down, it's many other indexes' components like ABX, HL, CDE, PAAS, etc. which leads to HUI/XAU weakness/general gold/silver stock weakness.
The larger the spike move the more severe the subsequent correction tends to be, and gold/silver stocks just had a huge spike move in HUI/XAU's major upcycle (since 5-16-05) Elliot Wave 3 minor int term upcycle since 10-20-05, which made sense because the major upcycle and the long term upcycle since 5-10-04 for HUI/NEM/XAU have become very strong, but the Fed's punch spiking was a major factor that probably added 15-20% to Wave 3's gains, because, since their cycles were very strong, they reacted very well to the Fed's massive lending to index fund traders. $73 Billion in Repos from 1-18 thru 1-26 for example.
Two new charts with the Elliot Wave count confirm that Tuesday 1-31 is probably the end of the major upcycle's (since 5-16-05) Wave 3 minor int term upcycle since 10-20-05 for HUI/XAU and since 11-4-05 for NEM. NEM's 1 year chart dated 1-20-06 indicated that Wave 3 was probably in progress, so major/final (long term and major int term) cycle highs were probably not occurring. See first two charts at: http://www.joefrocks.com/GoldStockCharts.html
If you were to wait for a 2% follow through sell signal (connect the bottoms/cycle lows since 10-20-05 to get the Wave 3 minor int term upcycle trendline) to confirm the Wave 3 sell signal you'd give back much of your gains, so Elliot Wave is highly useful.
The NEM lead Indicator at +0.60% vs the XAU so far today points to a rebound, that's begun as I write this. The XAU Put/Call Ratio and Implied Volatility both correctly pointed to some weakness today. This is the major upcycle's Elliot Wave 4 minor int term downcycle (since 1-31-06) Elliot Wave A down. Wave 4 is likely to be a 20-30% two monthish correction. Wave 4 could last about two months and the declines could exceed 25%, based on what happened in the prior parabolic major upcycle's Wave 4 that lasted 7 weeks in 2003, the XAU fell -25.11% and HUI fell -26.59%. Since the long term cycles are getting longer, the correction could be even longer and deeper.
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.
There has been downside gap filling this week since the major upcycle's Elliot Wave 3 for HUI and the XAU has turned down. The previous parabolic major upcycle's Wave 4 down lasted 7 weeks and the XAU fell -25.11%, from 82.89 on 1-24-03 to 62.08 on 3-13-03 (same timeframe), then a double bottom occurred about two weeks later, so it was a long correction and a very flat start to Wave 5 in the previous parabolic major upcycle.
Fed credit so far today ( http://www.newyorkfed.org/markets/omo/dmm/temp.cfm ) is a small $1.75 Billion 3 day Repo after a 1 day $7.5 Billion Repo and a 14 day $6 Billion Repo yesterday, a relatively modest $5 Billion 1 day repo on Wednesday, and a small $2.75 Billion 1 day Repo on Tuesday. Federal Reserve Bank Credit appears to be a very reliable short term cycle indicator (based on backtesting) when it has a substantial weekly change or a very large daily change, but cycles are the primary consideration by far.
NEM has downside gaps to fill at 59.20 from 1-30, at 56.97 from 1-25, 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 146.79 from 1-30, at 141.29 from 1-25, at 137.64 from 1-19, 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 generally 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 fell -1.82% to 34.990 on Thursday 2-2 from 35.640 on 2-1 versus a -1.16% decline in the XAU on 2-2, which is a sharp (2-2.99%) +2.98% rise in complacency (-1.82% + -1.16% = -2.98%. The XAU wall of worry shrank by -2.98%, therefore complacency rose by +2.98%) that portends weakness/a downtrend during part of Friday 2-3's session.
The XAU Put/Call Ratio rose today to 1.38442 from 1.29351 on 2-2 which correctly portended some weakness today because it's an unusually large > 6% rise in fear.
The latest COT data (as of 1-24-06) is bullish short term since the gold Commercial Traders traded net long and the gold Speculators traded net short, both of which portend strength for at least part of this week, but the data is three days old when released, so most of the strength may have occurred last week, and the Commercial Traders only added a modest 343 long contracts, and, covered a large number of short contracts. They also were surprised (as I was) by last week's strength due to the Fed's massive lending, because they added a large 11,306 short contracts the prior week in anticipation of substantial weakness. The gold Commercial Traders added 343 (added 10,554, 13,289, 6357 the prior three weeks, sold 1381, 8157 the prior two weeks) long futures and options contracts and covered a large 8435 (added 11,306, 4626, 3299 the prior three weeks, covered 2036 the prior week, added 4202, 2623 the prior two weeks) short futures and options contracts which portends strength this week (non contrarian indicator), but most of the strength may have occurred last week because the data is three days old when released, and the very modest long trade suggests that caution is in order. The gold Speculators (hedge funds and other speculators/traders) sold 6157 (added 5541, 2975, 1521 the prior three weeks, sold 3988, 5112, 19,247 the prior three weeks) long futures and options contracts and added 1783 (added 3743, 9445, 5824 the prior three weeks, covered 1535, 7432, 8720 the prior three weeks) 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).
The larger the spike move the more severe the subsequent correction tends to be, and gold/silver stocks just had a huge spike move in HUI/XAU's major upcycle (since 5-16-05) Elliot Wave 3 minor int term upcycle since 10-20-05, which made sense because the major upcycle and the long term upcycle since 5-10-04 for HUI/NEM/XAU have become very strong, but the Fed's punch spiking was a major factor that probably added 15-20% to Wave 3's gains, because, since their cycles were very strong, they reacted very well to the Fed's massive lending to index fund traders. $73 Billion in Repos from 1-18 thru 1-26 for example.
Two new charts with the Elliot Wave count confirm that Tuesday 1-31 is probably the end of the major upcycle's (since 5-16-05) Wave 3 minor int term upcycle since 10-20-05 for HUI/XAU and since 11-4-05 for NEM. NEM's 1 year chart dated 1-20-06 indicated that Wave 3 was probably in progress, so major/final (long term and major int term) cycle highs were probably not occurring. See first two charts at: http://www.joefrocks.com/GoldStockCharts.html
If you were to wait for a 2% follow through sell signal (connect the bottoms/cycle lows since 10-20-05 to get the Wave 3 minor int term upcycle trendline) to confirm the Wave 3 sell signal you'd give back much of your gains, so Elliot Wave is highly useful.
The NEM lead Indicator at +0.60% vs the XAU so far today points to a rebound, that's begun as I write this. The XAU Put/Call Ratio and Implied Volatility both correctly pointed to some weakness today. This is the major upcycle's Elliot Wave 4 minor int term downcycle (since 1-31-06) Elliot Wave A down. Wave 4 is likely to be a 20-30% two monthish correction. Wave 4 could last about two months and the declines could exceed 25%, based on what happened in the prior parabolic major upcycle's Wave 4 that lasted 7 weeks in 2003, the XAU fell -25.11% and HUI fell -26.59%. Since the long term cycles are getting longer, the correction could be even longer and deeper.
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.
There has been downside gap filling this week since the major upcycle's Elliot Wave 3 for HUI and the XAU has turned down. The previous parabolic major upcycle's Wave 4 down lasted 7 weeks and the XAU fell -25.11%, from 82.89 on 1-24-03 to 62.08 on 3-13-03 (same timeframe), then a double bottom occurred about two weeks later, so it was a long correction and a very flat start to Wave 5 in the previous parabolic major upcycle.
Fed credit so far today ( http://www.newyorkfed.org/markets/omo/dmm/temp.cfm ) is a small $1.75 Billion 3 day Repo after a 1 day $7.5 Billion Repo and a 14 day $6 Billion Repo yesterday, a relatively modest $5 Billion 1 day repo on Wednesday, and a small $2.75 Billion 1 day Repo on Tuesday. Federal Reserve Bank Credit appears to be a very reliable short term cycle indicator (based on backtesting) when it has a substantial weekly change or a very large daily change, but cycles are the primary consideration by far.
NEM has downside gaps to fill at 59.20 from 1-30, at 56.97 from 1-25, 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 146.79 from 1-30, at 141.29 from 1-25, at 137.64 from 1-19, 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 generally 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 fell -1.82% to 34.990 on Thursday 2-2 from 35.640 on 2-1 versus a -1.16% decline in the XAU on 2-2, which is a sharp (2-2.99%) +2.98% rise in complacency (-1.82% + -1.16% = -2.98%. The XAU wall of worry shrank by -2.98%, therefore complacency rose by +2.98%) that portends weakness/a downtrend during part of Friday 2-3's session.
The XAU Put/Call Ratio rose today to 1.38442 from 1.29351 on 2-2 which correctly portended some weakness today because it's an unusually large > 6% rise in fear.
The latest COT data (as of 1-24-06) is bullish short term since the gold Commercial Traders traded net long and the gold Speculators traded net short, both of which portend strength for at least part of this week, but the data is three days old when released, so most of the strength may have occurred last week, and the Commercial Traders only added a modest 343 long contracts, and, covered a large number of short contracts. They also were surprised (as I was) by last week's strength due to the Fed's massive lending, because they added a large 11,306 short contracts the prior week in anticipation of substantial weakness. The gold Commercial Traders added 343 (added 10,554, 13,289, 6357 the prior three weeks, sold 1381, 8157 the prior two weeks) long futures and options contracts and covered a large 8435 (added 11,306, 4626, 3299 the prior three weeks, covered 2036 the prior week, added 4202, 2623 the prior two weeks) short futures and options contracts which portends strength this week (non contrarian indicator), but most of the strength may have occurred last week because the data is three days old when released, and the very modest long trade suggests that caution is in order. The gold Speculators (hedge funds and other speculators/traders) sold 6157 (added 5541, 2975, 1521 the prior three weeks, sold 3988, 5112, 19,247 the prior three weeks) long futures and options contracts and added 1783 (added 3743, 9445, 5824 the prior three weeks, covered 1535, 7432, 8720 the prior three weeks) 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).
posted by Joe Ferrazzano at
8:11 AM
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