The Flat Topping Area Of The Monthly Upcycle
Reliable lead indicator NEM's third/Wave 5 short term cycle high (for the monthly upcycle since 10-4-06) peaked early today in rollover mode at 45.39. HUI/XAU's third/Wave 5 short term cycle high occurred early yesterday (see http://finance.yahoo.com/q/ta?s=%5EHUI&t=5d&l=off&z=l&q=c&p=&a=m26-12-9,p12,fs,w14&c=).
Not only can the Wave 5 short term upcycle peak in rollover mode as NEM's did today, but, another short term upcycle can occur as the monthly upcycle rolls over/flattens out dramatically/peaks. Given that the NEM Lead Indicator was a slightly bullish +0.10% versus the XAU today and was a bullish +0.54% yesterday, and, that the latest COT (Commitments Of Traders) data (see http://www.cftc.gov/dea/options/deacmxsof.htm) is modestly bullish, because the gold Commercial Traders traded modestly net long and the gold Speculators traded modestly net short, a monthly cycle high occurring next week as the monthly upcycle rolls over dramatically is a definite possibility.
Because NEM is probably in a Wave 3 Cyclical Bull Market since hitting a cycle low at 39.84 on 10-4-06 (see third chart at http://www.joefrocks.com/GoldStockCharts.html), NEM is leading to the upside, and, the NEM Lead Indicator will tend to be more bullish now than it was before it hit an extremely important Wave 2 Cyclical Bear Market cycle low at 39.84 on 10-4-06.
The fact that Wave 5 short term cycle highs have occurred for HUI/NEM/XAU, for the monthly upcycle since 10-4-06, indicates that trading long is risky now. A fourth rollover/relatively flat short term upcycle often occurs in which the monthly upcycle peaks in rollover mode, but, it's obviously much riskier to trade it, because it might not even occur, and, if it occurs it usually does so as the monthly upcycle rolls over/flattens out dramatically.
XAU Implied Volatility and the XAU Put/Call Ratio both indicate that there's too much risk to trade long right now, because XAU Implied Volatility has collapsed recently, which is a very sharp rise in complacency that portends weakness (that may have begun), from 39.400 on 10-19 to 34.985 yesterday, and, the XAU Put/Call Ratio reveals an unusually large (> 6%) rise in fear by XAU options traders, since it rose from 1.01039 yesterday to 1.13974 today (November expiration).
It probably makes a lot of sense to wait for a monthly cycle low to occur in the next week or two before looking to trade gold/silver stocks long. There should be an Elliot Wave ABC down up down pattern to the monthly downcycle, with each Wave (Elliot Waves are upcycles or downcycles) lasting about 2-4 sessions.The monthly cycle since 10-4-06 is the start of the 3-6 monthish Wave B up of HUI/XAU's Wave 2 Cyclical Bear Market since 5-11-06. NEM's Wave 2 Cyclical Bear Market that began on 1-31-06 ended on 10-4-06 at 39.84, so, reliable lead indicator NEM is probably in a 5 yearish Wave 3 Cyclical Bull Market since 10-4-06, see chart 3 at http://www.joefrocks.com/GoldStockCharts.html ........ http://www.JoeFRocks.com/
HUI NEM XAU
Not only can the Wave 5 short term upcycle peak in rollover mode as NEM's did today, but, another short term upcycle can occur as the monthly upcycle rolls over/flattens out dramatically/peaks. Given that the NEM Lead Indicator was a slightly bullish +0.10% versus the XAU today and was a bullish +0.54% yesterday, and, that the latest COT (Commitments Of Traders) data (see http://www.cftc.gov/dea/options/deacmxsof.htm) is modestly bullish, because the gold Commercial Traders traded modestly net long and the gold Speculators traded modestly net short, a monthly cycle high occurring next week as the monthly upcycle rolls over dramatically is a definite possibility.
Because NEM is probably in a Wave 3 Cyclical Bull Market since hitting a cycle low at 39.84 on 10-4-06 (see third chart at http://www.joefrocks.com/GoldStockCharts.html), NEM is leading to the upside, and, the NEM Lead Indicator will tend to be more bullish now than it was before it hit an extremely important Wave 2 Cyclical Bear Market cycle low at 39.84 on 10-4-06.
The fact that Wave 5 short term cycle highs have occurred for HUI/NEM/XAU, for the monthly upcycle since 10-4-06, indicates that trading long is risky now. A fourth rollover/relatively flat short term upcycle often occurs in which the monthly upcycle peaks in rollover mode, but, it's obviously much riskier to trade it, because it might not even occur, and, if it occurs it usually does so as the monthly upcycle rolls over/flattens out dramatically.
XAU Implied Volatility and the XAU Put/Call Ratio both indicate that there's too much risk to trade long right now, because XAU Implied Volatility has collapsed recently, which is a very sharp rise in complacency that portends weakness (that may have begun), from 39.400 on 10-19 to 34.985 yesterday, and, the XAU Put/Call Ratio reveals an unusually large (> 6%) rise in fear by XAU options traders, since it rose from 1.01039 yesterday to 1.13974 today (November expiration).
It probably makes a lot of sense to wait for a monthly cycle low to occur in the next week or two before looking to trade gold/silver stocks long. There should be an Elliot Wave ABC down up down pattern to the monthly downcycle, with each Wave (Elliot Waves are upcycles or downcycles) lasting about 2-4 sessions.The monthly cycle since 10-4-06 is the start of the 3-6 monthish Wave B up of HUI/XAU's Wave 2 Cyclical Bear Market since 5-11-06. NEM's Wave 2 Cyclical Bear Market that began on 1-31-06 ended on 10-4-06 at 39.84, so, reliable lead indicator NEM is probably in a 5 yearish Wave 3 Cyclical Bull Market since 10-4-06, see chart 3 at http://www.joefrocks.com/GoldStockCharts.html ........ http://www.JoeFRocks.com/
HUI NEM XAU
posted by Joe Ferrazzano at
1:18 PM
