Current USERX price = 19.60, Down 11 cents (.6%) since the report 3 weeks ago.
Introduction (repeated from prior Reports):
I have been using my unique SKI indices to predict price changes in the precious metals' market for more than two decades. And my indices continue to mark the critical points. I have initiated a subscription website since 1/13/06 (yes, Friday the 13th) after having posted free updates for years at www.321gold.com. SKI is a timing service; although almost everyone seems to believe that market timing is impossible, that IS what the SKI indices have done for 36 years.
The SKI indices contain short-term (16-20 trading days), intermediate-term (35-39 trading days), and long-term (92-96 trading days) indices. A more comprehensive description of these mathematical indices and their history is found here. Basically, the indices compare today's price to prices from a specified prior time period. The name of the index specifies the time period (e.g., 92-96 index = compare today's price to prices from 96, 95, 94, 93, and 92 trading days earlier). Although I use the oldest gold mutual fund, USERX, for analyses, the predictions are applicable to the broad precious metals' market. I do not recommend or analyze specific stocks, but my subscribers from around the world regularly discuss individual issues on our Forum. In addition to the truly unique SKI indices, I also use "run patterns" to guesstimate turning points in the precious metals' market. A "run" refers to a pattern of daily up and down market closing prices. If the market has 3 consecutive days of higher closing prices, the run is "3 up". If prices then decline for 2 consecutive days, the run becomes "3 up and 2 down". If prices then close higher the next day, the run changes to "2 down and 1 up". Some people have referred to run patterns as "worms". A run pattern is only completed after the direction of closing prices has changed. I have compiled a listing of every run pattern that has ever occurred and generated probabilities that the end of the run marks a high or a low, moderated by the indices themselves.
In the last gold stock SKI Report written on Sunday 12/12/10, I again described how the gold stocks still needed to decline to the 35-39 index in order to maintain the long-term integrity of the bull market. Historically, if the market does not decline down to the 35-39 index during an intermediate-term correction within a bull market, the ensuing intermediate-term (several month) rise has been “terminal” for an extended time period (i.e., prices decline significantly and sell the 92-96 index to end the bull market). Since everything that SKI provides is long-term bullish since the crash of 2008, I had been expecting that the gold stocks would decline to the 35-39 index in order to set up the next large intermediate-term leg higher that would still not end the bull.
And that is what happened.
Since the last report 3 weeks ago, the gold stocks first fell below their prices from 16-20 trading earlier and generated a 16-20 index buy signal on 12/15/10. The execution day for index signals is always the day after the signal is generated. We developed the SKI indices so that we’d have a “one-day notice” for when to act. So the 16-20 index buy signal executed on 12/16/10 at USERX 19.09 and spot gold at $1370.40. That was the first buying point for folks who were looking to add to long positions since the last 16-20 index buy signal that generated on 10/22/10.
But to maintain the integrity of the longer-term bull market, prices still needed to decline to that 35-39 index and historically, the decline into the 35-39 index should take prices below the 16-20 index’s buy-in price of USERX 19.09. After the 16-20 index buy signal, prices rose for a few days and then declined again.
On 12/23/10, as gold retested the $1370 area from the 16-20 index buy signal, the gold stocks declined just enough to generate the 35-39 index sell signal. Yes, it’s called a “sell” signal, but during bull markets, declines into a 16-20 index buy signal (short-term oversold) followed by a 35-39 index sell signal indicate that the precious metals complex has reached an intermediate-term oversold area. Therefore, the day after the 35-39 index sell signal generation represented a second point to do more buying. So Jeff bought USERX again on 12/27/10 at USERX 19.01 and spot gold at $1380.
The day after the index signal, the precious metals’ sector immediately gapped higher on the open and has continued to rise into this weekend. Gold closed at $1421 (up 3% from the buy-in and at a new all-time closing high) and USERX rose to 19.60 (up 3% from the buy-in). Although the performance of the gold stocks relative gold was rather poor last week (i.e., the gold stocks should rise at 2 to 3 times the rate of the metal), the index signals have, to date, marked the exact daily lows (Not surprisingly because that is what they are supposed to do: Come within a day of marking lows).
The bull market, ala the SKI indices, continues. The index signals executed on 12/16/10 and 12/27/10 have marked the recent lows in the golds tocks and gold bullion to the day and Jeff bought. That 12/27/10 index signal, during bull markets, has always (yes, “always”) marked the intermediate-term low to within one day OR it marks a low within an ongoing bottoming process. The two index signals probably marked the bottoms of the “A” and “C” waves within an ABC decline from the 12/06/10 high. The indices strongly suggest that prices will do some sort of additional rise over the next 1.5 weeks into a 16-20 index sell signal representing short-term resistance. However, no one knows how a correction will unfold and such a rise could be a short-term top that leads to another several-week ABC decline.
What I do “know” from the indices’ history since 1974 is that a new 35-39 index buy (as prices rise over the USERX prices from 35 to 39 trading days earlier) will signal the “all-clear” for the next multi-month intermediate-term rise and that the corrective process from the 11/08/10 and 12/06/10 highs will have been completed. Such a buy signal will be the last SKI entry/buy point for months and Jeff will probably employ some leverage in his long position. That could occur in just another 6-7 trading days and would overcome the expected 16-20 index sell signal. A rise to over USERX 19.84 for a few days will generate the 16-20 index sell signal and a rise to over USERX 20.23 over the next 6-7 trading days will be needed to generate the “all-clear” 35-39 index buy signal. Until we get that 35-39 index buy signal, the corrective process can (not “will”) continue for up to 35-39 trading days from 12/27/10. I will not be surprised if it does take some additional time to obtain the 35-39 index buy signal because the general stock market is rather overbought. But once the 35-39 index buys again, it should not sell again for months.
One way or another, there should be another large multi-month rise coming and the 35-39 index should signal such a rise (as it did on its 8/26/10 buy signal that just ended). And the good news is that such a rise should NOT end the longer-term 92-96 index bull market because we finally did get the historically-required correction down to the 35-39 index to mark a low!
Cheers for that decline to the 35-39 index! And Best Wishes for the New Year, Jeff
If you are interested in following and learning more about the SKI indices, I'll write another Report in three weeks or you can shell out the big bucks for a SKI subscription. Weekly Updates are available by subscribing for a month (or longer if you're wise and cheap enough to want to save money) at my website www.skigoldstocks.com for the princely sum of $25 (for a one month subscription) or more ($200 for an annual subscription). I also provide more frequent intra-week messages/alerts at a slightly higher price along with access to our informative Forum and a managed gold futures program. The precious metals are in a very long-term (decade+) up-trend but are the most precarious, volatile, and psychologically difficult market in the world (in my opinion). That's the way it's always been.