Special SKI Report #98
Gold Stock Update: It’s Getting Important

Jeffrey M. Kern, Ph.D.
Email: jeff@skigoldstocks.com
USERX | historicals
Written Jan 15, 2012
Published Jan 16, 2012

Current USERX price = 13.06, Up 44 cents (3.5%) since the last report 4 weeks ago.

Introduction (repeated from prior Reports):

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.

New Material

Before writing these updates, I always read the prior update to either humble me or make me think that SKI is the “Holy Grail”. Neither extreme is appropriate, but the last gold stock SKI Report written on Sunday 12/18/11 was rather perfect. The conclusions section stated “The mechanical SKI indices remain intermediate-term bearish and will continue to call resistances on rises, but a short-term low marked by multiple index signals is clearly feasible again. There’s still one more long-term SKI index sitting below USERX’s current price: The 663 index. The long-term cycles are making that 663 index look like a “magnet” that should get attracted to in the near future. The 663 index is the long-term system’s equivalent of the 16-20 index because it buys on declines and sells on rises. Jeff’s looking/hoping for a several-week rise soon to generate the short-term 16-20 index resistance signal”.

Since that 12/18/11 report, the gold stocks rose for 2 days to form a bearish 1 Down and 2 Up run pattern into 12/21/11 and then declined along with gold’s swoon into 12/28/11. On that day (12/28/11), USERX closed at 12.23 and the long-term SKI system’s 663 index include the following prices from 660-664 trading days earlier (that is from 5/12/2009-5/18/2009): 12.30, 11.97, 12.12, 11.94, and 12.04. In other words, the decline had reached the final long-term cycle support by hitting/touching the 663 index! The exclamation point means that Jeff is getting excited because this is long-term support and long-term cycles that are coming into play for a potential major bottoming process after one year of gold stock corrective movement that has not been “pleasant”. And when gold plunged again the following day but the gold stocks recovered to close positively (for a positive/bullish divergence, I couldn’t resist adding to my core physical gold position for the first time in more than 6 months and buying some gold stocks.

And since that late December low, the gold stocks have risen for several weeks to generate the 16-20 index sell signal that marks “first resistance” (again, exactly as per that 12/18/11 update). We’ve also just had another short-term bearish 1 Down and 2 Up run pattern into 1/10/12 at USERX 13.27. However, the market has not risen quite enough to generate its 663 index sell signal. Going back 660-664 trading days, those back prices are now peaking at USERX 13.63-14.41 and will decline to the mid-$13 range in one week before plunging in one week to the 11.97-12.67 area. Again, the 663 and 16-20 indices generate sell signals as prices rise over their back prices. Have you been reading about the SKI indices long enough (smile) to figure out what Jeff is about to conclude?

Conclusion:

Although Mechanical SKI’s regular and long-term systems remain in cash from months ago (except the ultra-long-term Life Run buy signal from 9/11/2008), the regular system is now set up for a true 16-20 index mechanical buy signal if prices decline. Such rare signals typically mark the end of extended corrective periods. In the short-term, the precious metals’ sector has reached first short-term resistance, but the long-term cycles/indices have been prominent in the past year (including a master 221 index signal that missed marking the 9/08/11 top by one day and then the market declined to the 12/28/11 touch of the 663 index at that low). Therefore, it is quite feasible and desirable (for the bullish case) if the goldies would rise a little more here into a 663 index sell signal. If that occurs, a subsequent decline would yield the once in several-decade index/cycle pattern of simultaneous identical buy signals on both the regular and the long-term mechanical systems. That bold-faced type is supposed to highlight the potential short-term and long-term importance of such signals.

Best Wishes, Jeff

P.S. Thanks for your congratulatory emails on my son’s wedding. It was a wonderful life-event. Both of my sons started working and saving money last year, so let’s see if they listen to SKI and buy some gold and gold stocks if that scenario in the conclusions section comes to fruition. I certainly won’t be forcing them to take on risk (I can’t, anyway!), but these very intelligent young men don’t yet seem to understand that inflation combined with ultra-low interest rates reduces their purchasing power. I started with gold and USERX when I was 28 years old. They are 29 and 26….

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.

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email: jeff@skigoldstocks.com

Jeffrey M. Kern,Ph.D., is an academic psychologist with a specialty in the measurement and prediction of human behavior. The communications provided are for informational purposes only and are not intended to be investment advice or recommendations for specific investment decisions. Dr. Kern is not a registered investment advisor, but is registered as a commodity trading advisor (CTA). The information provided is considered accurate, but cannot be guaranteed. Investments/trading in narrow market segments or gold futures is for individuals willing to accept a higher level of risk for the opportunity of greater returns. Past performance is no guarantee of future performance. His website is www.skigoldstocks.com.

Communications should be sent to: jeff@skigoldstocks.com.

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