Current USERX price = 17.35, Down $2.25 (11.4%) 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 1/02/11, I described how the gold stocks had finally declined to the 35-39 index on 12/27/10 at USERX 19.01 and that I had done some buying. The expectation was for a rise for at least a few weeks and generally, a continuation of the bull market. I emphasized, however, that the corrective process could extend and that the next intermediate-term rise would be marked by a new 35-39 index buy signal (meaning that when prices rose again to go over the prices from 35, 36, 37, 38, and 39 trading days earlier, the next multi-month rise would be underway). Until that index buy signal occurred, the correction “could” (not “would”) continue.
That last SKI Report actually marked the start of a more significant decline, so the overall bullish tone of that report was blatantly incorrect. On the Monday (1/03/11) after that report was written, the gold stocks did a “key reversal down” (i.e., a higher high than the prior trading day and a close below the prior day’s low) while COMEX gold closed higher for a glaringly bearish divergence. The significant decline on the following day (1/04/11) caused USERX (the gold stock mutual fund) to close at 19.00, one penny below the prior 35-39 index signal. It’s usually easy to see retrospectively, but that one-penny breach of the index signal initiated a rather continuous decline over the past 3 weeks.
Obviously, we have not obtained the new 35-39 index buy signal that would provide an “all-clear” signal for the bull market to continue. Instead, there were two additional bearish divergence days on 1/13/11 and 1/19/11 when gold bullion on the COMEX closed higher while the gold stocks declined.
And this past week, prices declined enough to begin moving the master 92-96 index towards its sell signal. The rules that I described in the prior Report were dependent on the 92-96 index continuing on its 7-month buy signal. If the 92-96 index sells, the gold stocks will be entering a new phase according to the SKI indices. The 92-96 index’s back prices for this coming week are:
Monday (1/24/11): 17.41, 17.44, 17.32, 17.51, 17.47
With USERX sitting at 17.35 as of Friday (1/21/11), there isn’t any more room to the downside. The master 92-96 index can easily generate its sell signal in conjunction with the U.S. Federal Reserve announcement on this coming Wednesday (1/26/11). But we do not have that signal yet, and the 92-96 index came within one day of selling on two occasions this past summer, at the exact summer 2010 lows, and then rose to avoid ending the buy signal. That can occur again this coming week, but the gold stocks will need to rise and then continue to rise because USERX will need to stay above the rising prices from 9/07/10 (96 trading days ago) through early December, rising month after month.
If this is not a low as of this past Thursday-Friday, and the 92-96 index does sell, what will it “mean”? The SKI indices mark critical points on the map of the precious metals’ market. Hence, when the 35-39 index signal marker of USERX 19.01 was breached by a penny, the gold stocks declined. A 92-96 index sell signal will sell the mechanical SKI system at its profit for safety, but it truly can mark an important low. But it isn’t a buy signal, and such a sell signal, even if it marks a low, will indicate that subsequent index signals on rises will be marking resistances/highs. It would take a few months of rises, declines, and rises to set up the next major 92-96 index buy signal.
That’s why I titled this Report “A New Phase”. The gold stocks are either about to just rise and rise to avoid the 92-96 index sell signal and a new 35-39 index buy signal (on a rise) will confirm that the next multi-month rise is underway (ala the signal on 8/26/10), OR the 92-96 index signal will occur this coming week and we’ll be in for a more difficult phase. The most disconcerting thing for the bullish case is that the general stock market continues to be overbought and when it finally corrects downward, that is, of-course, likely to have a negative influence on the gold and silver mining stocks. But in the even longer-term view, I vehemently disagree with analysts who state that the precious metals have formed a long-term high: Until we obtain a death run top (ala May 2006), the long-term life run low pattern from the Fall of 2008 predicts a continuing multi-year rise.
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.