Special SKI Report #248
Gold Stock Update: Drop to Low?

Jeffrey M. Kern, Ph.D.
Email: jeff@skigoldstocks.com
USERX | historicals
Written Sunday Jan 24, 2021
Published Jan 25, 2021

Current USERX price = 13.11, Down 42 cents (3.1%) 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 SKI Report, written on 1/03/20, reported that Mechanical SKI’s 35-39 index buy signal (from 12/23/20 at USERX 13.11) had generated its sell signal because the gold stocks had failed to rise enough to stay ahead of that index’s rising back prices. As per the title of that Report, SKI was now going to be “open” and going back to a cash position after taking a small profit.

What happened? The 35-39 index’s sell signal had just generated on the trading day prior to that Report (12/31/20). SKI signals were designed to provide a 1-day advance notice by EXECUTING index signals one trading day AFTER they generate. That way, we have a 1-day advance notice to buy/sell at the end of the next trading day. Therefore, the 35-39 index’s sell signal executed on the first trading days of the New Year (1/04/21). Fortunately, the gold stocks surged higher that day as gold rose $51.60. The “small” profit turned into a solid 1.5-week gain of 9% as USERX rose 6.1% on 1/04/21 to close at 14.29 (smile), complete that mechanical trade, and open the indices.

The surprisingly large rise during that first day of the New Year generated an instant new 35-39 index buy signal and the small rise on the next day (1/05/21) was just enough to generate a new master 92-96 index buy signal. Since those are labeled/described as “Buy” signals (as the current price rises above the prices from 35-39 and 92-96 trading days earlier), doesn’t that sound bullish? NOT necessarily. As per the simple free/public description of SKI (https://ssl.skigoldstocks.com/about.php) that never changes, the index signals mark THE technical spots, often to the day. And the historical PATTERN of index signals (since 1974) is extremely important. Therefore, here’s the bold-faced major conclusion sent to SKIers regarding the new, very important 35-39 and 92-96 index buy signals that generated on 1/05/21-1/06/21:

“A 35-39 index buy signal quickly followed by a 92-96 index buy signal is a "Double Buy" that either marks a strong intermediate-term impulsive rising phase OR (sorry) marks a high usually on the 92-96 index's buy signal. If it marks a high, the 92-96 index would sell on some decline (usually quickly; a few days or a week or two at a loss).”

Therefore, as many analysts and gold investors declared a major gold and gold stock bullish break-out, SKI marked that spot as a “breakout OR a significant top”. Jeff bought a little (10%).

The USERX run pattern provided additional information on 1/05/21-1/06/21. The daily SKI Message on 1/05/21 stated,

“The USERX run pattern is again at 1 Down and 2 Up. If USERX declines tomorrow (1/06/21), a Triple 1 Down and 2 Up run pattern would complete! As noted yesterday, it would only be the 3rd such run pattern since 1974. The other 2 occasions have been bearish.”

A Triple 1 Down and 2 Up run pattern means that USERX (and only USERX run patterns matter!) went 1 day Down and then 2 days Up, followed instantly by 1 Down and 2 Up, followed instantly by a third 1 Down and 2 Up. That yields probable bearish to fit with the 2 index buy signals having marked a top on 1/05/21-1/06/21. And so it was…

The ensuing decline/plunge generated the objective Mechanical SKI sell-stop via that common quick master 92-96 index sell signal on 1/12/21. That’s dangerous for any continuing long positions.

The gold stocks DID continue lower. The harsh decline on Friday (1/15/21) generated a buy signal on the 3rd SKI index, the short-term 16-20 index. This index is contrarian. It buys on declines and sells on rises. It is similar to a traditional stochastic indicator. But once again, the historical PATTERN of index signals is very important. This 16-20 index oversold buy signal generated rather immediately AFTER the master 92-96 index’s sell signal. Using SKI terminology, the buy signal was “XXed Out” for danger. Most of the time (about 90%), such buy signals are broken to the downside and often result in large declines. Therefore, it was too risky to recommend buying. Nonetheless, with the benefit of brief hindsight, it did mark the technical spot (a low). The rise on last Tuesday (1/19/21) and the surge higher on Wednesday (1/20/21) was just enough to generate a 16-20 index SELL signal. The 16-20 index was about to record its 5th consecutive profitable trade (smile) since the August 2020 top, but it was too dangerous to buy and it only made 2% in 3 trading days as the sell signal executed last Thursday (1/21/21).

Note that last week’s rise into a likely short-term top via the 16-20 index’s sell signal, ALSO completed yet another USERX 1 Down and 2 Up run pattern. Plus, Friday’s (1/22/21) decline to USERX 13.11 exactly hit/touched the 35-39 index towards its sell signal. That index’s back prices were/are rising from the 11/24/20 low of 11.98. Its back prices on Friday were 11.98,12.23, 12.49, 12.62, and 13.12.

Now, after another unusually large number of index signals during January, (rather exactly marking the high at the start of the year and the little low on 1/15/21; the technical spots), the historical probabilities favor a continuing decline.

A strong decline during this coming week would generate the USERX 35-39 index’s sell signal to mark yet another technical spot. The decline could challenge or exceed the 11/24/20 low of USERX 11.98. A powerful continuous decline would yield a major run pattern: A rare “Life Run” low in concert with the 35-39 index’s signal. The last Life Run low occurred in December 2016. That was THE exact USERX low for years until it was surpassed by 4% on the exact 3/13/20 virus-plunge (and index-marked) low. Jeff is purposely refraining from stating the likely date and the detailed mathematical requirements, in deference to subscribers.

And to keep some uncertainty present, as markets/nature often do, USERX’s quick decline from its 1/21/21 16-20 index sell signal is about to provide another quick 16-20 index BUY signal. This is very SKI-likely to an important week and Monday (tomorrow; 1/25/21) is likely to be an important day.

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 $30 (for a one month subscription) or more ($240 for an annual subscription). I also provide more frequent intra-week daily messages/alerts at a slightly higher price along with access to our informative Forum.

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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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