Current USERX price = 17.15, Down another 3.5% since the last report 3 weeks ago due to a large dividend. Adding back the $2.43 dividend yields a large rise of 10.5% over the past three weeks.
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 the most informative gold site, 321gold, since its inception approximately six years ago. 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 32 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 at http://www.skigoldstocks.com/about.php. 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 on 12/15/07, I described how the gold stocks had declined into SKI index signals. Prices had fallen into the first line of support, the short-term 16-20 index, and then had fallen into the second support point, the 35-39 index. I concluded by writing that "The decline at the end of the week (12/14/07) was rather bearish as prices appear to have been firmly rejected from the index resistance and actually fell below the earlier index support signals".
On the following Monday (12/17/07), the gold stocks declined another 4%. Prices had fallen below the 35-39 index support. The next downside target was therefore the final SKI index, the 92-96 index. The 92-96 index had bought on 9/11/07 at USERX 16.15. That index buy signal is required for all bull markets. If the gold stocks were in a bull market, the 92-96 index had to remain on its buy signal. Since prices had just broken through to the downside on Monday (12/17/07), prices were supposed to continue to fall into the 92-96 index. Was the 92-96 index going to sell?
And then one of those "strange market events" occurred. USERX, the mutual fund that has a history of paying small dividends and has been rated by Lipper as being the best precious metals mutual fund for tax efficiency (http://www.usfunds.com/docs/qfp/3q2007/3q_2007_USERX_QFP.pdf), declared an enormous dividend of $2.43 on 12/20/07. That dividend caused the price of USERX to plunge down to 14.75.
I often write how the SKI indices somehow reflect and capture "nature". The "artificial", dividend-induced decline, caused USERX to hit the final index, the 92-96 index. It was supposed to fall into that index, but who would have thought that a rare dividend would fulfill that requirement?
So the final level of Price X Time support was hit on 12/20/07. If the precious metals were in a bull market, prices needed to hold and rise immediately to prevent the 92-96 index from selling. The next day, 12/21/07, prices rebounded up strongly, back over the 92-96 index back prices. We know what's happened since then, as the gold stocks have rebounded back up to near the highs of this decade in just nine trading days from the touch of the 92-96 index (a rise of 14%).
I can't offer an explanation as to why the indices work in this manner or how nature could somehow influence USERX to provide an extremely unusual dividend on the exact day the gold stocks hit their low. SKI is simply empirical and this is the type of market behavior that has been recurring for the past 35 years, but I have never seen a dividend fulfill an index requirement like this dividend did. In fact, logic would dictate that when a mutual fund (or a stock) provides a dividend, that the dividend should be added back into the price. If you look at charts of USERX, you'll see that the charting services have corrected all of the historical prices for the dividend. The highest USERX price occurred on 11/06/07 at 20.84. I kept writing that prices were going to decline. USERX fell from 20.84 to 14.75 in just six weeks. But if you now look at a chart of USERX (http://stockcharts.com/h-sc/ui?s=USERX&p=D&b=5&g=0&id=p00184796783) you'll see that the high price is listed at 17.90. If you add $2.43 to 17.90, that doesn't equal the true high price of 20.84, demonstrating once again how charting services make several important errors each year! I am the keeper of accurate prices! But the empirical point is that the SKI indices were discovered using THE price, whether it is affected by dividends or other factors. In the 1970s, USERX regularly gave three 5+% dividend payments each year. Yet the indices worked and we didn't add back the dividend into the price when calculating the indices. Folks, I cannot explain this in a logical manner. In 1985, during the development of the SKI indices, we researched whether adding back the dividends would improve the indices. The answer was clearly "No". The price is the price...
In any case, we've just witnessed prices falling into final support on 12/20/07 due to that dividend, marking the low to the day, and prices have skyrocketed. The rise since 12/20/07 has occurred despite weakness in the general stock market. This past week was the first time in at least a year that the gold stocks were able to rise despite weakness in the general stock market. Gold stock investors must finally be pleased!
I noticed that the television financial news programs have been touting gold as an investment this past week as gold bullion closed at new historic nominal highs and the U.S. financial situation continues to deteriorate. That's usually a contrary indicator. USERX has also risen enough to generate new SKI signals that were executed on Thursday (1/03/08). PRICES HAVE QUICKLY REACHED INITIAL RESISTANCE. A further price rise strongly suggests that another impulsive leg higher, as per the August November 2007 wave higher, is underway.
We'll see. I continue to project that prices will eventually decline into the second major SKI buy signal of this decade, but another leg higher may have started off of that 12/20/07 touch of the major 92-96 index. The next critical point is likely to occur in 18 trading days.
2008 started off with a bang for precious metals investors! The first day after Labor Day and the first day of each New Year usually predict the trend for the next few months!
If you are interested in following and learning more about the SKI indices, I'll write another Report for 321gold 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. 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.
Best wishes for the new year, Jeff