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Contributed By:

  "Joe F. Rocks! Growth Stock Investor & Market Strategist"


Growth Stock Timeliness - Tuesday - Untimely (Weakness during much of Tuesday's session with a close less than 1% up is a "hit!." Some judgement is involved.)
- Very Short Term (2-3 Days) - Untimely (Dramatic rise in complacency the past three months.)
- Short Term (2-3 Weeks) - Untimely (Very moderate intermediate term cycle low on March 12, but there's been a dramatic rise in complacency since NDX broke it's trend of declining peaks about eleven weeks ago (established an intermediate term uptrend).)

Next Session Accuracy/Usefulness Rating - NASDAQ - 106.5 out of 130. 81.92% ("Hit!" NDX in positive territory on Monday and closed much higher.)
- Gold Stocks - 46 out of 60. 76.67% ("Miss." XAU in negative territory during all of Monday's session and closed significantly lower. This for now will only be a test of XAU implied volatility mechanically interpreted (no judgement) since I usually get the data a day late (I will probably augment this system with two more implied volatility indicators (real time data) similar to how I time the major averages.).


The NASDAQ Composite (COMPX) opened significantly higher at 1685.41 on Monday, and, thanks to the market's (NDX, QQQ, and OEX) rise in fear on Thursday, a strong US Dollar, and very firm non US stock markets prior to Monday's trading, COMPX spent the entire session in positive territory and closed much higher at 1720.71, +57.25 (+3.44%).

The "likely" NDX (NASDAQ 100) intermediate term cycle high of 1265.69 on June 6 was taken out on Monday July 7 with a new high for this intermediate term cycle of 1282.31. I firmly believe this is a liquidity bubble similar to March 2000. The P/E (price/earnings ratio) of the S & P 500 stands at about 36 now versus 32 in March 2000. If the economy was recovering why did the Fed recently switch to a weak economy bias and remain on that bias after cutting rates by 25 basis points on June 25.

Many of the recent reports revealed weaker than expected job creation and manufacturing sector growth. Q1 GDP growth was revised down to a 1.4% growth rate. Just as liquidity caused a dramatic bubble in early 2000 the same phenomenon is occurring now and will probably be followed by a similar dramatic decline in the major averages and in economic activity.

The NASDAQ wall of worry (VXN (NASDAQ 100 Volatility Index) and QQV (QQQ Volatility Index)) grew dramatically on Monday with VXN revealing that an unusual rise in fear occurred for NDX (NASDAQ 100) and QQV revealed that an unusual rise in fear occurred for QQQ (NASDAQ 100 Tracking Stock). The NASDAQ is deemed untimely on Tuesday. Better than expected economic data may result in strength. Williams %R is in the sell area now (above -20 (near the top) on my chart is the (look to) "sell" area).

An unusual rise in fear occurred for the NASDAQ 100 on Monday, with VXN (NASDAQ 100 Volatility Index) rising +1.04 (+3.20%) to 33.51 despite NDX (NASDAQ 100) rising +50.55 (+4.11%) to 1281.89 which reveals that an unusual rise in fear occurred for NDX because VXN rose very sharply in percentage terms as did NDX (NDX wall of worry grew dramatically) which portends weakness in NDX on Tuesday.

An unusual rise in fear occurred for QQQ (NASDAQ 100 Tracking Stock, +1.31 (+4.28%) to 31.89) on Monday since QQQ rose very sharply in percentage terms as did QQV (QQQ Volatility Index, +1.50 (+5.44%) to 29.08) (QQQ wall of worry grew dramatically) which portends weakness in QQQ on Tuesday.

On Monday VIX rose (+0.44 (+2.04%) to 22.05) despite a rise in OEX of +9.42 (+1.90%) to 505.50 which was a very sharp rise in fear for the S & P 100/value stocks (OEX is about 75% value stocks) since the wall of worry (VIX) rose sharply in percentage terms despite OEX (S & P 100) rising significantly which normally portends strength in OEX on Tuesday but the unusual rise in fear that occurred for NDX and QQQ will probably result in weakness. The S & P 100 is deemed untimely on Tuesday but better than expected economic data may result in strength. Williams %R is in the sell area now (above -20 (near the top) on my chart is the (look to) "sell" area).

The CBOE Put/Call Ratio at a moderate level (at or above 0.50 but below 0.75) of 0.71 at Monday's close suggests there will be strength early on Tuesday because it's a reliable non-contrarian indicator of the next session's early action except at extremely high (at or above 1.05) or extremely low levels (at or below 0.50) where it sometimes is also a contrarian indicator (sometimes portends early substantial strength (below 0.50) or a sharp rally following early potentially severe weakness (at or above 1.05), judgement is involved).

The NASDAQ TRIN closed at a bullish level of 0.49 (much more activity in rising issues) on Monday which is positive technically but the fact that the NASDAQ TRIN was in or near overbought territory (below 0.35) for much of the session is a negative. A level between 0.35 and 0.80 is a bullish range for the NASDAQ TRIN because it indicates much more activity in rising issues. A NASDAQ TRIN above 1.00 indicates more activity in declining issues. A NASDAQ TRIN between 1.20 and 1.50 is a clearly bearish "red zone" range because it indicates much more activity in declining issues but not a very oversold condition. If the NASDAQ TRIN rises above 1.50 you can begin to look for a rally and if it rises above 2.00 that tends to be a reliable short term buy signal (very oversold condition).

Investor's Intelligence survey of advisor sentiment is at 58.6% bullish and 16% bearish as of June 11 which is the fewest % Bears since 1987 (scary). Also, 58.6% bullish is a very high level of bullishness for Investor's Intelligence which is a major warning sign and occurred only two days after an intermediate term sell signal occurred for the NASDAQ. The "advisors" became even more bullish (above 60%) on June 18 and were above 59% bullish on June 25.

Looking at NASDAQ 100 (NDX) Chicago Mercantile Exchange Commitments of Traders in all Futures Combined and Indicated Futures (Reportable Positions as of July 1, 2003), the speculators (hedge funds and other speculators/traders) added 64 long contracts and covered/bought back 70 short contracts which portends weakness (modestly bullish bias with speculators being contrarian indicators) whereas the commercial traders sold 118 long contracts and added 840 short contracts which portends weakness (non contrarian indicators (know what they're doing)).

In the past two months the insider sell/buy ratio (another primary fundamental indicator) more than quadrupled:

MAY $ Value Sells = $7,373,062,001 $ Value Buys = $357,955,496 Sell / Buy = 20.60
APRIL $2,656,070,973 $247,416,809 10.74
MARCH $2,596,777,616 $577,142,734 4.50

It amazes me that few so called experts in the field rarely seem to use primary fundamental indicators such as the above to discern what's going on.

American Association of Individual Investors (AAII) % bullish (AAII has been a useful non-contrarian sentiment indicator at extremely low levels below 40% bullish and extremely high levels above 60% bullish.) @ 41.2% bullish is a negative factor for the prospects of stocks during the week ending 7-11 because it's near a very low level of bullishness.

On Monday July 7 HUI/XAU broke through their short term uptrend lines (the bottom line of their short term uptrending channels) and, thanks to favorable gold/silver COTs (released a day late due to the holiday) as discussed later, bounced off the bottom of their parabolic intermediate term channels late in the session. The fact that they're not far from the bottom of their parabolic intermediate term channels and the COTs were favorable indicates that strength is likely on Tuesday.

It appears to be a great time to buy gold stocks for the next leg up. There was strong institutional buying during the week ending June 27, the week ending July 3, and on Monday after little buying interest on Thursday and Friday of the week ending June 20. HUI/XAU broke out and rallied to the top of their parabolic intermediate term channels during the week ending June 20, "bounced off," and tested support at the bottom of their intermediate term channels on Tuesday and Thursday of the week ending June 27.

On Tuesday June 17 long awaited major breakouts occurred for HUI/XAU (HUI slicing 155 and XAU breaking out of it's year long triangle) paving the way for dramatic gains in the next month or two. I'll put more thought into reasonable targets for those indices but 185-200 for HUI and 112.23 (a Fibonacci level I got from someone I have faith in) for the XAU are reasonable targets for now. However, these targets are best for short term trading/intermediate term cycle high swag with the next paragraph discussing when an intermediate term sell signal occurs.

One should have a chart of both indices with the parabolic intermediate term channels drawn (basically connect the highs and lows (from early in the cycle) since March 13, maintain the width from early in the cycle and use the parabolic shape of the upcycle to create the parabolic channel/trend). Once a parabolic intermediate term channel is broken decisively to the downside for either index a cycle high has probably occurred and it's time to sell. An intermediate term sell signal occurs when the parabolic intermediate term channel breaks down.

Gold stocks can shoot up now (next few weeks/months) because they're not as constrained by the top of HUI/XAU's parabolic intermediate term channels whose curves have gotten steeper (much less constraining).

On Thursday there was a significant rise in gold stock fear since XAU (Philadelphia Gold and Silver Index) IV (Implied Volatility) Index composite (XAU wall of worry) rose 1.82% to 30.26% (from 29.72% on Wednesday: +0.54%/29.72% x 100%) versus the XAU falling 1.10% that incorrectly portended strength on Monday (XAU in negative territory on Monday and closed significantly lower at 78.84, -0.97, -1.22%.) because (the XAU wall of worry grew) XAU implied volatility rose significantly more in percentage terms than the XAU fell.

However, CBOE Gold Index (GOX) IV (Implied Volatility) Index composite (GOX wall of worry) fell significantly versus a significant decline in the GOX which was a sharp rise in complacency that correctly portended weakness in gold stocks on Monday.

On Wednesday there was a very sharp rise in gold stock complacency since XAU (Philadelphia Gold and Silver Index) IV (Implied Volatility) Index composite (XAU wall of worry) fell 4.16% to 29.72% (from 31.01% on Tuesday: -1.29%/31.01% x 100%) versus the XAU falling 0.46% that correctly portended weakness on Thursday (XAU in negative territory during most of the session and closed significantly lower at 79.81, -0.89, -1.10%.) because (the XAU wall of worry shrank) XAU implied volatility fell very sharply despite the XAU falling modestly.

The XAU Put/Call Ratio for the July 18 expiration is at 0.519 on Monday from 0.524 on Thursday (0.534 on Wednesday, 0.527 on Tuesday July 1, 0.601 on Monday June 30, 0.656 on Friday June 27, 0.600 on Thursday June 26, 0.617 on Wednesday June 25, 0.570 on Tuesday June 24, 0.581 on Monday June 23, 0.379 on Friday June 20) which portends weakness on Tuesday because it fell significantly in percentage terms versus a significant decline in the XAU which is a sharp rise in complacency for the XAU (this indicator is generally a contrarian indicator except (sometimes) when an unusual rise in fear (such as on Monday June 23) or complacency occurs it can be a non contrarian indicator). The sharp rise to 0.617 on Wednesday June 25 did accurately portend strength on Thursday June 26 because in the face of significant metal weakness (Gold August 2003 (COMEX) down $5.40 to $344.20) the XAU managed to rally from significant early weakness to eke out a slight gain on Thursday June 26.

Friday June 20's very low level (very high level of complacency) correctly portended weakness on Monday June 23. The dramatic rise in the XAU Put/Call Ratio on Monday June 23 was an unusual rise in fear that portended weakness on Tuesday June 24.

As I say below the XAU Put/Call Ratio appears to be acting as a contrarian indicator BUT an unusual rise in fear with a contrarian indicator usually portends weakness (non contrarian case for contrarian indicators) and an unusual rise in complacency portends strength though I don't do anything mechanically in my work/system. One should always use all relevant indicators, tools, info, technical condition, channels/trends, wether the intermediate term cycle is heading up or down, fundamental factors such as expected weak economic data, etc. At times "keen analytical judgement" is involved.

I need to observe this indicator for a while to establish/see if it's contrarian or non contrarian. The XAU Put/Call Ratio was at 0.55 on Friday May 30 and rose to 0.61 by Wednesday June 4 which portended major strength on Thursday June 5. The decline to 0.60 on Friday June 6 portended weakness on Monday June 9 with HUI/XAU modestly lower. It appears likely that the XAU Put/Call Ratio is a contrarian indicator but I still need to gather a bit more data to establish a statistically meaningful sample size/get a warm feeling for the indicator.

HUI (AMEX Gold Bugs Index) stochastics and RSI are on a buy signal now. MACD (below it's moving average) and ROC are on a sell signal to be ignored. HUI is on a short term buy signal.

As long as HUI remains in it's intermediate term uptrending parabolic shaped channel it's technical condition is positive (intermediate term buy signal/uptrend).

The very high HUI volatility on Friday 3-28 is characteristic of bottoming activity and exceeded that of the intermediate term cycle low that occurred on October 10, 2002.

For gold bugs the fact that June 6's NDX high (1265.69) isn't a cycle high for this intermediate term cycle (began March 13) is interesting because it probably means the gold stocks will rally another month or two since during the prior three intermediate term cycles gold stocks rallied for a month or two (even longer in one case) after an intermediate term cycle high occurred for the major averages as I discuss in more detail later.

Newmont Mining (NEM), probably the leading gold stock and a lead indicator for the group, broke out of it's giant triangle pattern (going back almost exactly 1 year at the time of the breakout) recently.

NEM's major long term breakout is a major positive for gold stocks (was a reliable leading indicator that the XAU would "slice" it's giant triangle to the upside).

Silver is "locked" in a giant triangle pattern (past year or so) and should break out to the upside in the near future which means that silver stocks are worth a good look right now. Hecla Mining (HL) which I own and Pan American Silver (PAAS) which Bill Gates owns (last I heard) are two good silver stocks (perform your own due diligence) though Hecla is really about a 50/50 gold/silver mix now.

Intermediate term cycles tend to follow parabolic patterns, so the breakouts for HUI/XAU above their uptrending intermediate term channels recently wasn't surprising. Interestingly, both HUI/XAU have now formed parabolic shaped intermediate term channels (connect the highs and lows from early in the cycle since March 13, maintain the original width from early in the cycle and use the parabolic shape of the rise to form the parabolic channel's upper and lower trendlines).

The XAU no longer has to contend with the top of it's giant triangle formation going back to the late May 2002 intermediate term cycle high. A major long term breakout occurred on Tuesday June 17.

In the last three intermediate term cycles gold stocks rallied for a month or two after the major averages hit an intermediate term cycle high. There was an intermediate term cycle high for the major averages in March 2002 and gold stocks exploded until the end of May 2002. There was an intermediate cycle high for the major averages in late August 2002 and gold stocks rallied well into September 2002. There was an intermediate cycle high for the major averages on December 2, 2002 and gold stocks didn't peak until January with HUI hitting an intermediate term cycle high in early January and XAU peaking in mid to late January.

However, in the intermediate term cycle that began in early April 2001 the gold stocks hit an intermediate term cycle high at the same time as the major averages but gold was still in a long term downtrend (Bear Market) at that time.

Gold experienced an intermediate term cycle low (near the bottom of it's uptrending price channel) on Monday 4-7 with a session low of $319.20. Gold fell a bit below the bottom of it's "hidden channel" on Monday 4-7. In late May gold experienced an intermediate term cycle high near $375. It appears that seasonality (linked to gold's cycles) is a major factor for gold stocks.

Looking at "CFTC Commitment of Traders Combined Futures and Options" for gold (Reportable Positions as of July 1, 2003), the speculators (hedge funds and other speculators/traders) sold 6442 long contracts and covered 1053 short contracts whereas the commercial traders added 4019 long contracts and covered/bought 2764 short contracts. The bearish posture of the speculators is a positive (contrarian indicator) and the bullish posture of the commercial traders (non contrarian indicators (know what they're doing)) is a positive.

Looking at "CFTC Commitment of Traders Combined Futures and Options" for silver (Reportable Positions as of July 1, 2003), the speculators (hedge funds and other speculators/traders) added 88 long contracts and added 358 short contracts whereas the commercial traders sold 2258 long contracts and covered/bought back 2037 short contracts. The modestly bearish posture of the speculators is a positive (contrarian indicator) and the modestly bearish posture of the commercial traders (non contrarian indicators (know what they're doing)) is a negative.

For the US Dollar (USD) commercial traders (U.S. DOLLAR INDEX - NEW YORK COTTON EXCHANGE as of Tuesday June 24, 2003, July 1 was NA) sold 3938 long futures contracts and added 361 short futures contracts which portends weakness in the USD (non contrarian indicators (know what they're doing)) and is a bullish factor for gold in USD terms. The speculators (hedge funds and other speculators/traders) added 1183 long futures contracts and covered/bought back 624 short futures contracts which is bearish (contrarian indicator) for the USD and a bullish factor for gold in USD terms.

For the Euro commercial traders (FX - CHICAGO MERCANTILE EXCHANGE as of June 24, 2003, July 1 was NA) added 2816 long futures contracts and covered/bought back 4258 short futures contracts which portends strength in the Euro and strength in gold in USD terms. The speculators (hedge funds and other speculators/traders) sold 6074 long futures contracts and covered/bought back 1421 short futures contracts which portends strength (contrarian indicator) in the Euro and is bullish for gold in USD terms.

Keep in mind that the metal lags the gold stocks on a long term (and apparently intermediate term basis with an intermediate term cycle high in early February versus the stocks peaking in January and an intermediate term cycle low on April 7 nearly a month after the stocks hit an intermediate term cycle low on March 13) basis. The metal recently had an enormous rally from the $300/Ounce area to about $388. It played catchup with the HUI which is a good sign (HUI rose 70-75% in both 2001 and 2002, outperforming the metal, and began it's Bull Market in late 2000 about 5-6 months before the metal).

A gold stock Bull Market (The New Bull Market!) began in late 2000. I suspect there will be a huge rally in the next few months (an intermediate term buy signal occured on Friday 3-28 with HUI rising 7.91%) as occurred in 2001 and 2002 this time of year. Short covering will be a major factor because the gold stock market is still a relatively small one.

Look for gold to trend higher this year and long term. $330.00, a major resistance level, was broken on Thursday 12-12-02. There might be a lot of money to be made in the gold stocks during the next few weeks but keep in mind they tend to be extremely volatile as they have been recently. The 50 basis point Fed rate cut at the November 6 FOMC and the 25 basis point rate cut at the June 25 FOMC are major positives for gold stocks. The rapid growth in the money supply is a major positive for the precious metals. The Fed is in the unenviable position of having to inflate (decrease the dollar's value) in order to keep the economy afloat.

Thursday 12-12's major breakout above $330/ounce confirms a likely long term Bull Market for gold and is a major long term buy signal.

At late May's intermediate term cycle high gold volatility became very high which correctly indicated there would be a major move down. The spike up in volatility accompanied the very sharp rise to the $375 area and correctly identified an intermediate term cycle high in gold. It appears that extremely low volatility marks gold bottoms and extremely high volatility marks important tops which is the opposite of what happens with the major averages where extremely low volatility marks tops and extremely high volatility marks bottoms on both a short and intermediate term basis (The extreme cycle low on 9-21-01 occurred at an extreme of volatility that saw VXN rise above 91. A sell signal occurred in March 2002 when VXN fell below 40 because it indicated that an extreme of low volatility was near. All the major averages (growth and value) began trending lower at that time though the major NASDAQ averages began trending lower in early January because growth stocks hit a cycle high at that time.).

It appears the market may be heading for another short intermediate term cycle (began on March 12 when VIX hit 40 but VXN was at a very moderate level of 43) such as began on July 24, 2002 and October 10, 2002 when VIX rose above the extreme level of 50.00. So, I'll be looking for another important cycle low when VIX reaches 50+ (and/or if VXN reaches the extreme level of 80+).

VXN is new as of January 2001 so not enough data exists yet to be a statistically meaningful sample size but identifying major deltas in fear (Delta VIX/VXN) and peaks in VIX/VXN can identify likely cycle highs and lows. The principle of a major rise (delta) in fear or complacency leading to major rallies/declines in the major averages is a sound one as is the degree that fear or complacency creeps into the market as it rallies/declines (how well the wall of worry holds up) portending strength (when fear creeps in) or weakness (when complacency creeps in). This chart of the percentage moves in VIX and VXN versus the S & P 500 (SPX), the Dow (DJIA), and the NASDAQ Composite (COMPX) illustrates that sound principle of market timing.

Two extremes of fear (VIX hit the extreme level of 50+ on 7-24-02 and 10-10-02 and VXN rose to moderately high levels of 69+ and 64+ respectively on those dates) in 2002 led to (triggered) intermediate term cycle lows. When VIX and VXN both exceeded extreme levels (of 50 & 80 respectively) on 9-21-01 (VXN hit 91+) a healthy long intermediate term (6 month+) cycle ensued (an extreme intermediate term cycle low/major bottom occurred).

Value stock volatility (VIX, OEX Volatility Index, is mostly value stock volatility because the S & P 100 appears to be about 75-80% value stocks. VIX largely reflects value stock volatility) is running ahead of growth stock volatility as it did when the July 24, 2002 and October 10, 2002 intermediate term cycle lows occurred with VIX at a low level (between 20-25) at 22.05 as of Monday's close and VXN at a very low level (below 40) of implied volatility/fear at 33.51. For VXN to be at a "high" level of implied volatility/fear it would be at or above 60 which is where it was (at 64+) when the October 10 (the second "VIX 50.00" moderate cycle low in 2002) intermediate term cycle began. Growth stocks are much more volatile than value stocks hence the differing levels for "high" implied volatility, "very high" implied volatility, etc. for VIX and VXN.

The disparity between growth and value stock implied volatility/fear is "preventing" an extreme cycle low by triggering an intermediate term cycle low before NASDAQ/growth stock implied volatility/fear (VXN/QQV) becomes extreme (occurred twice in 2002). I think VXN must at least reach 75 and probably near or above 80 before an extreme cycle low can occur. It reached 91+ when the last extreme cycle low on 9-21-01 occurred as I've discussed previously. It also spiked above 80 when the April 2001 cycle low occurred. We got another "VIX 50.00 rally" (moderate cycle low) on 10-10-02 and a very moderate cycle low on March 12 when VIX rose to 40ish but VXN was only at 43ish.

The moderate intermediate term cycles after the July 24, 2002 cycle low (and after the October 10, 2002 and March 12 cycle lows) strongly supports my view that VXN must approach or exceed 80 as it has in recent intermediate term cycle lows (growth stock fear must become extreme) in order for a true extreme cycle low (major bottom) to occur.

At true extreme cycle lows fear becomes much more extreme than it did on 7-24-02, 10-10-02, and 3-13-03 (VXN at about 70 on 7-24-02, at 64 on 10-10-02, and at 43 on 3-13-03. Spiked to 91+ at the September 21, 2001 cycle low and well above 80 when the April 2001 cycle low occurred). Also, complacency doesn't creep back into the market as quickly as it did during the recent moderate intermediate term cycles after 7-24-02, 10-10-02, and 3-12-03. In other words, buckle up!

People who mechanically rely on one indicator such as VIX tend to get into trouble. This is why I look at a variety of primary indicators such as VXN, QQV, VIX, Advance/Decline Ratio, Up/Down Volume, total volume, money flow, Investor's Intelligence survey of advisor bullishness, etc. I would call the July 24 and the October 10 Bear Market lows moderate intermediate term cycle lows because VIX reached an extreme level of 50+ but VXN fell well short of an extreme 80+ (it rose to about 70 on 7-24-02 and 64 on 10-10-02. Spiked to 91+ on 9-21-01).

Intermediate term cycles tend to be 3-12 months in duration in recent years. There were two intermediate term cycle lows in 2001 (April and September) with September 21, 2001's being a major bottom (extreme intermediate term cycle low where VIX > 50 and VXN > 91 on 9-21-01).

Since there was an enormous rise in complacency during the intermediate term upcycle after the March 12 very moderate (VIX rose to a respectable 40+ but VXN only rose to 43+) intermediate term cycle low (VIX, VXN, and QQV fell dramatically), the primary growth stock indicators portend an intermediate term cycle high in the near future (may have occurred on June 6).

Breadth, a primary fundamental indicator, was very positive on Monday with NASDAQ A/D at nearly 23:9 in favor of advancing issues and NASDAQ Up/Down Volume was in favor of up volume by 5:1. When an intermediate term cycle low occurs and a new upcycle begins breadth should turn convincingly positive during the early high fear part of the cycle. Growth (NASDAQ is mostly growth) will be more timely than value (NYSE is mostly value) but both should rise sharply during the early high fear (VXN > 60, VIX > 30) part of the cycle.

VXN is at 33.51 as of Monday and I expect it to briefly spike above 80 and possibly even 90 the day an extreme cycle low (major bottom) occurs. It's likely that will be the only day that VXN spikes above 80, especially if it rises above 90. The more extreme fear becomes the more likely a "V" shaped cycle low occurs as opposed to a "W" shaped retest cycle low occurring probably as a result of a more moderate peak level of fear. VIX (OEX/value stock implied volatility) reaching 50+ is another likely indication that an intermediate term cycle low will occur (be triggered by an extreme of fear) soon, but is a much less extreme cycle low than when VXN (growth stock volatility) reaches 80+.

A great trading opportunity may occur in the next few months. Keep in mind that from the September 21, 2001 COMPX intermediate term cycle low of 1387 to the intermediate term cycle high in early January 2002 of about 2100 COMPX gained about 50% in three and a half months. So, a very nice gain will probably result if one buys QQQ near the cycle low and exits once a complacent, fairly low volatility market arises.

One needs to keep in mind that the sentiment picture can change drastically in a few hours or even less from what I discussed using the previous close's sentiment figures. It's important to look at VXN intraday and compare it to the figure I discuss from the previous session's close. If fear rises substantially (large + Delta VXN) that portends a rally and if complacency jumps (large - Delta VXN) substantially that portends weakness. An unexpectedly large jump in fear or complacency can dramatically change the very short term sentiment picture.

It's important to remember that when capitulation becomes a major factor that fear/volatility (VXN) can rise dramatically and though that normally would portend a nice rally, a lag time arises and one has to wait for the cycle low to go long QQQ once serious capitulation begins. The steep drop and quick snapback at NASDAQ cycle lows tends to form a V (a retest of the cycle low is a possibility also which is a W).

I suspect that the more extreme fear/volatility becomes (VXN spiking above 90 to 91+ as it did on 9-21-01 when the last extreme cycle low (major bottom) occurred) the more likely a "V" will occur and a more moderate peak level of fear/volatility (VXN failing to reach 80) greatly increases the likelihood of a "W" pattern (retest and potential double bottom formation) cycle low occurring.

The low level of implied volatility/fear (as of 6-30-03) has a high correlation with a low level of volatility. Daily moves in COMPX on the order of 1%+ aren't surprising. Volatility (VXN) may rise sharply in the next few sessions because the intermediate term cycle is probably heading down and implied volatility (fear) tends to rise as the market falls.

If you buy QQQ at the wrong time you might experience substantial downside. Buying very near the cycle low takes nerves of steel and is only for highly skilled traders due to the extreme volatility. Don't try this at home unless maybe you are a highly skilled trader or you can live with a great deal of risk. For neophytes IF you try to trade the gold stocks or QQQ (or any highly volatile stock) you should only be using a modest amount of risk capital and should have a risk mitigation strategy.

Happy trading, may the force be with you,

Joe F. Rocks!


 

Joe Ferrazzano is the Market Strategist and Stock Analyst for (as well as the creator of) Joe F. Rocks! Growth Stock Investor & Market Strategist (www.joefrocks.com), a market timing service (as well as a "destination" site) which times 2-3 day intervals, 2-3 week intervals, 3-6 month intervals (Intermediate Term), as well as long term timing (Transitions between Bull/Bear markets). Joe also discusses the next trading session, especially concerning what type of action to expect early on. Joe's methods of analyzing various sentiment indicators to help time the market and to time growth stocks as well as value stocks was devised nearly entirely by Joe himself and is founded on the sound premise that substantial increases in fear tend to lead to growth stock rallies and substantial increases in complacency tend to lead to growth stock weakness. Joe uses many indicators in addition to sentiment indicators such as money flow, the NASDAQ Volatility Index (VXN), the NASDAQ ARMS Index (TRIN), Advance/Decline Ratio, Up/Down Volume Ratio, Relative Strength Index (RSI), stochastic, etc. The market's cycles from extreme fear at cycle lows to extreme complacency at cycle highs are a major factor in Joe's work. Joe F. Rocks! Growth Stock Investor & Market Strategist is a market timing service as well as a "destination" site that has won rave reviews from countless readers around the world.

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