The Russell 2000 (RUT) Appears To Have Put In A Major Intermediate Term Cycle Low Yesterday

The Russell 2000 (RUT) appears to have put in a major intermediate term cycle low yesterday, see http://stockcharts.com/charts/gallery.html?%24rut, and, note the bullish very large inverse spike on yesterday 1-9's candle.

A strong short term Wave 1 upcycle is obviously in effect, but, a 2% follow through short term buy signal hasn't occurred yet, and, 5% follow through must occur in order to trigger a major intermediate term cycle buy signal.

The WMT Lead Indicator was very bullish the past five sessions, at +2.40% versus SPX (S & P 500) today/on 1-10, at +0.66% on 1-9, +0.57% on 1-8, at +1.21% on 1-7, and, at +1.04% on 1-4.

Based on the very bullish WMT Lead Indicator, the major averages are likely to rally substantially the next few weeks (during the monthly upcycle), probably until the Fed's rate decision (at the Fed meeting/FOMC on 1-30), then a selloff on the news/monthly downcycle (5-7 session decline) is likely to begin shortly after the rate decision (should obviously pop more/longer if there’s a half point rate cut versus a quarter point rate cut).

Assuming that RUT's (Russell 2000, http://stockcharts.com/charts/gallery.html?%24rut) major intermediate term downcycle since late July 2007 bottomed yesterday, the environment for trading (especially small cap) rockets should improve dramatically.

My primary trading strategy is to trade major and sector indexes long and short via ETFs, like the big boys do. The rockets trading strategy right now is obviously a very secondary sideline.

The rockets trading strategy is obviously very effective in a great market, such as during 1999-early 2000 and for most of 2003. Since the Russell 2000 (RUT, http://stockcharts.com/charts/gallery.html?%24rut) trended down from late July 2007 until 1-9-08/yesterday, assuming it's bottomed (for now, a Cyclical Bear Market probably began in late July 2007), the rockets trading strategy (long) wasn't a good one. A short selling rockets trading strategy would have made sense during the major intermediate term downcycle.

Another strategy I am going to use is to trade high income ETFs for income and capital gains, such Pimco's PHK fund (JPS is one from Nuveen), that have reasonably high volatility, probably due to the credit crisis.

No stocks/ETFs/commodities I discuss are recommendations, I'm simply discussing how I use "Trade the Cycles" to time indexes/stocks/commodities/ETFs etc.

Tomorrow I'll be looking to go long RUT (Russell 2000) via the Ultra Long ETF UWM, and, I'll be looking to short HUI (http://stockcharts.com/charts/gallery.html?%24hui)/XAU via shorting the Gold Miners ETF GDX.

With RUT (http://stockcharts.com/charts/gallery.html?%24rut) it looks like I might have to wait for a short term Wave 2 downcycle before trading long. However, from looking at RUT's 5 day intraday chart, see http://finance.yahoo.com/q/ta?s=%5Erut&t=5d&l=off&z=l&q=c&p=&a=m26-12-9%2Cp12%2Cfs%2Cw14&c, it looks like there will probably be a significant/sharp downcycle some time in the next session or two.

Watch reliable lead indicator WMT's downside gap at 46.90 from today/1-10's open. If WMT fills (or clearly fails to after approaching it) that downside gap at 46.90, then it will probably make sense to go long RUT (via an ETF such as UWM) shortly thereafter.

However, before trading SPX/NDX/RUT aggressively long it makes sense to wait for a strong multi day short term Wave 1 upcycle (has obviously begun), that will trigger a 2%+ follow though buy signal (after breaking the intermediate term downcycle trendline). Once a 2%+ follow though buy signal occurs, one looks to go long during a 2-3 day short term Wave 2 downcycle.

With HUI (http://stockcharts.com/charts/gallery.html?%24hui)/XAU the current strength is probably the last gasp of the Wave 1 Cyclical Bull Marlet since late 2000, and, until proven otherwise, the XAU peaked on 11-7-07 (http://stockcharts.com/charts/gallery.html?%24xau).

The US Dollar probably entered a Cyclical Bull Market in November 2007 after being in a Bear Market since late 2005, see http://stockcharts.com/charts/gallery.html?%24usd, gold stocks have been underperforming gold since 11-7-07, the very bearish gold COT data, etc.

The NEM Lead Indicator is bearish recently, it was a bullish +0.59% versus the XAU today/on 1-10, it was a bearish -0.55% on 1-9, it was a bearish -0.81% on 1-8, was -0.05% on 1-7, -0.42% on 1-4, -0.56% on 1-3, +0.94% on 1-2, +1.38% on 12-31, -0.90% on 12-28, -1.15% on 12-27, -1.12% on 12-26, -1.10% on 12-24, -1.08% on 12-21, -0.18% on 12-20, -0.26% on 12-19.

The gold COT (Commitments Of Traders) data remains bearish, see the third/last data at http://www.cftc.gov/dea/options/deacmxsof.htm. The savvy non contrarian gold Commercial Traders traded significantly net short in the five day period ending 12-31-07 (traded net short 16,658 gold futures and options contracts versus trading net short 12,456 the previous week), trading a significant long position (added 5608 long gold futures and options contracts versus 8002 added the previous week), correctly anticipating some short term strength, but, continuing to go massively short (added 22,266 short gold futures and options contracts versus 20,458 added the previous week), as they've done in recent months.

So, the gold COT (Commitments Of Traders) data is short term mixed and long term bearish. Some significant gold strength this week wasn't surprising, but, it's very likely to be a great shorting opportunity.

I bought a tiny position in LTXX at 2.9999 on 1-2, see http://stockcharts.com/charts/gallery.html?ltxx. The purchase was ill timed, because, SPX/NDX/RUT were in an intermediate term downcycle. One wants to trade with the wind at one's back, that is, trade long when SPX/NDX/RUT are in an intermediate term upcycle. LTXX appears to have put in a Cyclical Bear Market cycle low at 2.25 recently and a monthly cycle low yesterday 1-9.

As a long term multi-year investor in any stock, commodity, etc. you want to buy near the primary multi-year Secular Bull Market/very long term upcycle trendline. Gold's primary multi-year Secular Bull Market/very long term upcycle trendline is at $490ish right now, so, gold would be a great buy in the $490-520 range. When the vast majority of gold writers say it's a great time to buy or are bullish, as they almost always are, it's rarely a good time for long term investors to buy.

HUI/XAU's Wave 2 Cyclical Bear Market basically began 5-11-06 (the long term upcycle from June 2006 to 11-7-07 was an anemic rollover upcycle, in which HUI/XAU were underwater until October 2007 versus the 5-11-06 cycle highs), see charts 7 and 9 at http://www.joefrocks.com/GoldStockCharts.html. The primary Secular Bull Market trendlines since late 2000 are at 210-230 for HUI and at 90-95 for the XAU. Those are the targets for where the Wave 2 Cyclical Bear Market will bottom. ....... http://www.JoeFRocks.com/ .

HUI NEM XAU