Trade the Cycles

Tuesday, February 28, 2006

...............................Just Watch NEM

The NEM Lead Indicator turned very bearish yesterday at -2.26% vs the XAU and remains so today at -1.25% vs the XAU right now. Not surprisingly the expected ABC correction scenario appears to be occurring and the cycle lows two weeks ago were in fact Wave A short term cycle lows not the start of the major upcycle's (since 5-16-05) Wave 5 minor intermediate term upcycle. They occurred too far above the major upcycle trendlines to be likely Wave 4 cycle lows. NEM and the XAU are racing toward their downside gaps. NEM has downside gaps to fill 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 to fill at 128.03 from 1-3, at 124.36 from 12-28, and at 122.49 from 12-22. Shortly after NEM fills it's downside gap at 48.75 from 12-7 and the XAU fills it's downside gap at 122.49 from 12-22 Wave 4 should bottom. Based on that and the latest major upcycle trendlines (see latest 1 year charts, http://www.joefrocks.com/GoldStockCharts.html ) my Wave 4 cycle low target ranges are 255-265 for HUI (was 240-250), 47-49 for NEM (was 45-47), and 117-122 for the XAU (was 112-117). XAU Implied Volatility rose less in % terms (to 35.925 on 2-27 from 35.260 on 2-24) than the XAU fell yesterday (-3.45%) which was a significant rise in complacency that portends some weakness today. The XAU Put/Call Ratio (March Expiration) rose an unusually large > 6% today to 1.03355 from 0.91840 yesterday, which is an unusually large rise in fear that portends some weakness today. Also, the Fed isn't spiking the index fund trader punch this week, with only $2 Billion in Repos yesterday and $3.5 Billion so far today: http://www.newyorkfed.org/markets/omo/dmm/temp.cfm?SHOWMORE=TRUE http://www.JoeFRocks.com/

posted by Joe Ferrazzano at 7:26 AM

6 Comments:

  • Which means we should be considering how to play a 5 - 5 up awhile? I'm thinking it's the juniors' turn to shine. A lot of the silver juniors did absolutely nothing during the 3 up while the bigger companies (thinking SLW and PAAS) soared.

    By Blogger Jeff, at 8:12 AM  

  • Jeff, many juniors did nothing, because their cycles tend to lag the larger caps dramatically, and many did very well because they recently entered a new cyclical Bull Market after finishing a 12-18 month cyclical Bear Market. Aurora Gold ARXG.OB went from 6 cents to 1.98 (more than 3000%) in less than 7 months. A thinly traded speculative junior, NOT a recommendation at all. Others (all .OB I think) are APLL, ASXSF, USGL, MNEAF, LNXGF, etc. and there are many others. NOT recommendations, I'm a market timer, just worth due diligence.

    By Blogger Joe Ferrazzano, at 8:45 AM  

  • Jeff,

    Silver tends to lag gold. It bottomed in late 2001 versus April 2001 for gold, which explains why the silver juniors tended to lag and some of the larger silver stocks like CDE and SIL also lag HUI/NEM/XAU, but not as much. CDE and SIL hit long term cycle lows in May 2005 versus May 2004 for HUI/NEM/XAU.

    By Blogger Joe Ferrazzano, at 8:50 AM  

  • Which could mean silver strength continuing into the summer after gold stocks' wave 5 peak, right? Therefore, they could offer a longer term play than playing the golds for the wave 5 up alone. Or just a later wave up, so money coming out of the gold wave 5 should be moved into silver, rather than put into silvers initially....just wondering "aloud" to organize thoughts ahead of time.

    By Blogger Jeff, at 9:15 AM  

  • Jeff,

    If HUI/NEM/XAU start a 12-18+ month cyclical Bear Market later this year as I expect they will, I'll make a long list of stocks that aren't in a cyclical Bear Market (I've already identified dozens that dramatically lag) BUT you still have to wait for a major cycle low to occur. You have to be careful about making sweeping generalizations, but many/probably most juniors and some non juniors like CDE/SIL recently began 5-6 year Cyclical Bull Markets. CDE/SIL completed a 15 monthish Cyclical Bear Market in May 2005. Ciao

    By Blogger Joe Ferrazzano, at 10:07 AM  

  • Jeff, in Wave 5 the best larger and mid cap gold/silver stocks will be those completing a 6 yearish Wave 1 Cyclical Bull Market as HUI/NEM/XAU probably will, because they'll be at their point of maximum strength cyclewise. Throw in a few modest positions in good juniors and one should do very well. This is not for everyone, because juniors tend to be extremely volatile, as I'm sure you know.

    By Blogger Joe Ferrazzano, at 10:27 AM  

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