Special SKI Report #132
Gold Stock Armageddon: AVOIDED

Jeffrey M. Kern, Ph.D.
Email: jeff@skigoldstocks.com
USERX | historicals
Written Jan 19, 2014
Published Jan 20, 2014

Current USERX price = 6.55, Up 60 cents (10%) since the last report 3 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

The last gold stock SKI Report, written on Sunday 12/29/13, described how the gold stocks (USERX) were within 1-2 trading days of executing a 16-20 index sell signal. Such an index signal represents first resistance after a lengthy decline, but it’s also the first sign that the prior Armageddon-decline period has completed because a subsequent decline into a 16-20 index buy signal would be bullish. Therefore, the 1-2 trading days after the last SKI Report were marked by the index as being the next critical technical point.

And what a 1-2 day period that was! After closing at 5.95 on 12/27/13, USERX absolutely needed to remain above 5.84 on Monday (12/30/13; the specific numbers were not stated in the last SKI Report in deference to subscribers) so as to generate the important 16-20 index sell signal. On 12/30/13, the gold stocks declined and the HUI index dropped 2.6%. Such a large decline could have caused USERX to drop to below 5.84 on 12/30/13 to avoid the index signal, but somehow USERX managed to close at 5.86, 2 cents above the needed 5.84. THAT GENERATED THE 16-20 INDEX SELL SIGNAL. Again, that index’s sell signal meant that a decline would simply generate a Mechanical SKI 16-20 index buy signal. Such buy signals are almost always buyable support, but there’s one historical caveat to such bullishness: If the subsequent 16-20 index buy signal occurs immediately (i.e., exactly one day) after the sell signal, the market usually continues down through the 16-20 index’s buy signal to initiate another Armageddon-type decline. Therefore, an important 12/30/13 SKI Update was sent that is summarized via this excerpt from that Update:

“Conclusion: This is becoming quite important and today was very interesting based upon the 16-20 index. I am going to conclude that another decline tomorrow (12/31/13) to below USERX 5.74 would strongly suggest the start of a NEW (another) Armageddon-decline period. Bulls will note that this sector only declined today to fill open up-gaps and to touch/test the chart downtrend line that was bullishly broken above via last week's gap higher. This is just a retest of that broken resistance line. That fits with the fact that USERX held up enough today to actually generate its 16-20 index sell signal. That sell signal is required for any bullish case. JUST SO LONG AS THE SELL SIGNAL ISN'T FOLLOWED BY AN IMMEDIATE DECLINE INTO A BUY SIGNAL. Obviously, a rise tomorrow would maintain the index's sell signal. USERX may have generated its needed 16-20 index sell signal today but a juxtaposed 16-20 index buy signal on a decline tomorrow to below USERX 5.74 would appear to be MORE BEARISH than if the index sell signal had just been entirely avoided: The juxtaposed sell and buy index signals would be expected to initiate a new 20-40 trading day Armageddon period. Once again, it's obvious to Jeff that the index is marking "the spot".

The gold stocks then gapped lower the next day (12/31/13) and USERX was about to fall to below 5.74 to generate its BEARISH (immediate) 16-20 index buy signal, but then the gold stocks reversed higher despite gold closing down for the day. The IMMEDIATE 16-20 index buy signal had been avoided in a bullish manner. The 12/31/13 SKI email can be summarized by this excerpt:

“Conclusion: A strong decline today would have caused Jeff to declare the start of another "Armageddon-decline" period, but after an early morning decline, somehow gold and the gold stocks reversed to the upside to avoid the rather clear prediction of another 1-2 months of declining prices. WE HAD A POTENTIAL "BULLISH SAVE" ON THE LAST DAY OF THE YEAR… This was supposed to be a critical technical point. It IS. Jeff's concludes that today (12/31/13) may end up, in hindsight, being an important bullish day for the long-term situation. There's endless resistance above, but today avoided a rather obvious and immediate "Armageddon".”

Since 12/31/13, the gold stocks HAVE risen. As per last weekend’s (1/11/14) SKI Update: “Although there cannot be a day-to-day prediction for Monday (1/13/14), a rise over the next 5-X trading days into the 35-39 index’s resistance, IS predicted.”

Conclusion

A rise into the second resistance, the 35-39 index is under way (as USERX rises over the prices from 35-39 trading days earlier). That second resistance index signal is approaching (dates reserved). Short-term traders should sell into that index signal because a short-term decline will be highly probable. Then the gold stocks are expected to rise again into the major long-term resistance, the 92-96 index (as USERX rises over the prices from 92-96 trading days earlier). Jeff will be adamant, based upon historical precedents since 1974, that the 92-96 index will stop the rise, as has occurred on every meaningful rise since 2011. At that time, selling, hedging, and/or shorting will be recommended. A true bull market will require that prices rise to that 92-96 index resistance, then decline to below the 92-96 index, and then rise for a few days to generate a bull market 92-96 index buy signal.

Best Wishes, 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.

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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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