Special SKI Report #49
The Gold Stock Rise Continues

Jeffrey M. Kern, Ph.D.
Email: jeff@skigoldstocks.com
USERX | historicals
Written Jan 25, 2009
Published Jan 26, 2009

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:

In the last gold stock SKI Report written on 1/04/09, titled "Still Gold Stock Bullish", I described how SKI continued to be bullish despite a 14.5% rise over the prior three weeks.

In this Special Report, I decided to provide a partial reprint of the regular weekend SKI Report written one week ago, on Saturday, 1/17/09.

"SKI Update
1/17/09
U.S. markets are closed on Monday 1/19/09 for Martin Luther King's holiday.

Intra-Week Update is not expected. New material in the tables and sections in the latter part of each Update are boldfaced.

Here's a link to the finest visual presentation of SKI on the planet developed by the computer whiz and expert SKIer, BMGOLD on our Forum:

The regular indices as of 1/16/09:

http://img520.imageshack.us/img520/681/screenhunter49va4.jpg

The long-term indices as of 1/16/09:

http://img174.imageshack.us/img174/6521/screenhunter50uz6.jpg

Prices remain on the 35-39 index buy signal (above the red line in the first graph). Prices fell last week to generate the short-term indices' oversold buy signals by falling below the blue line. Looks very good/bullish as prices immediately began to rise and are approaching short-term sell signals that either will be delayed or prices will rise through that resistance. Then we'll get to see if and how prices will finally rise to the 92-96 index resistance (the green line in the first chart). The long-term indices are far above the market and out-of-the-picture. Try and learn to understand SKI (over time) from these wonderful charts of the indices.

Update Summary: Current USERX price = 9.86, Down 2.5% for the week (For profit/loss purposes, add 73 cents due to the 12/09/08 dividend).

Bottom Line: The gold stocks declined last week to generate the short-term index buy signals that appear to have marked the closing and intra-day lows of a 2+ week corrective phase. SKI remains on the 35-39 index buy signal that executed on Monday (12/15/08; 9.69). If prices stay above Friday's (1/16/09) price for another two trading days, the short-term indices will generate sell signals. Those sell signals should not stop the market's rise if the 35-39 index intermediate-term buy signal is correctly bullish. I've been wavering as to whether I would continue to use the 35-39 index sell signal as a stop, but this pattern makes me return to using it as a stop loss. I'd send an Intra-Week Update if that were to occur on a decline, but the situation appears to be appropriately bullish and I'm still writing that prices should rise to the 92-96 index. I'd been looking for that to occur over the next week (actually the next 7 trading days), up to the USERX mid-$11 area but that appears to be too far above the current price in too short of a time period. After 7 more trading days, those 92-96 index back prices will be rising and will be above the mid-$11 area for a month, so we'll just have to see if/when the 92-96 index gets hit to mark an intermediate-term topping area. And here's the repeated "pep talk", bullish, long-term statement that I believe in: "REMEMBER HOW WE CAME TO DESPISE (as prices rose from August 2007) THE STUPID PREDICTION (that was based upon the May 2006 death run top), that prices would eventually fall below the 2006 and 2007 lows? That prediction was correct (it's always worked long-term). NOW YOU CAN DESPISE THE PREDICTION THAT A GREAT LONG-TERM RISE WILL OCCUR, because that's the prediction based upon the history of life run lows".

As time progresses, the three regular SKI indices' back prices are gradually converging and those three regular SKI indices are gradually coming back into the picture. This past week's decline generated the short-term index buy signals and the decline stopped exactly on the indices' oversold buy signals. In non-professional terminology, that's a "Yippee, Hurrah"! I had been hoping that the market would not decline to such buy signals because now we have to deal with short-term index sell signals on a rise. But if the bullish intermediate-term case (via the 35-39 index buy signal) is correct, the gold stocks will rise through those sell signals and proceed up to the 92-96 index. That's the way that it is supposed to occur, but if the market does not do that, the 35-39 index will be selling on a decline and Jeff will have to write to sell. I have to remain bullish and this past week's market behavior finally reinforces that view (despite a week-over-week price decline) after several weeks of confidence-shaking declines.

The 16-20 short-term index (and the Composite index; the average of the 15-19 and 16-20 indices) bought on 1/15/09 as the gold stocks appeared to have made their intra-day corrective low, and the 15-19 index bought a day earlier (as usual), apparently catching the exact closing low on 1/14/09. Friday's (1/16/09) rise immediately started those indices towards generating their subsequent sell signals, so the bears can argue that prices have simply risen back into resistance. EVENTUALLY PRICES MUST EITHER RISE THROUGH THE SHORT-TERM INDICES' SELL SIGNALS OR FALL BELOW THEIR BUY SIGNALS. The intermediate-term 35-39 index buy forecasts that prices will rise through the sell signals.

The 35-39 intermediate-term index (On the Path and NOT XXed Out) is on a true SKI buy signal, but it is not as powerful as a true bull market 92-96 index buy signal nor as high a probability as a true 16-20 buy signal. Please review the 12/12/08 Update (always in the Archives section of the website) for the history of such signals.

The market's behavior over the first two weeks after that buy signal was consistent and normal in terms of 35-39 index buy signals. Prices are supposed to rise about 21% over about 21 trading days from this type of 35-39 index buy signal. But this past week's decline was NOT encouraging because prices are now only 4+% above that buy signal after 17 trading days. Clearly, prices need to rise strongly at this point to be consistent with that buy signal. The 35-39 index is not near a sell signal yet, but its back prices will soon begin to rise.

This coming week the 35-39 index back prices will begin to rise. The SKI stop loss is finally rising. The bears' case requires a 35-39 sell signal, period. The 35-39 index back prices for this coming week are important and are:

To sell the 35-39 index, prices would need to quickly drop USERX 9.07 and stay down for a few days. Last week, prices did decline intra-day to hit the 35-39 index on 1/15/09, but then reversed to close higher for the day. That certainly looked like the corrective low and that the 35-39 index is not likely to sell any time soon.

The IMPORTANT 92-96 index back prices are finally approaching the low area that I had been targeting as a likely time/place for the market to rise into the 92-96 index resistance. The decline over the past 2 weeks makes it difficult for USERX to reach the 92-96 index at this time, but who knows? Over the next 7 trading days (the low area), the 92-96 index back prices are as follows:

To generate a 92-96 index buy signal any time soon, you should be able to see that prices will need to really fly higher over the next 7 trading days. I am not predicting such a fast and strong rise, but the set-up IS there. JEFF (NOT SKI) SELLS INTO SUCH A BUY SIGNAL. SKI SELLS ON A 92-96 SELL SIGNAL (and Jeff sends an Intra-Week sell Update) that would likely occur very quickly after the buy signal because the 92-96 index back prices will be flying higher to the USERX 12.97-13.74 area just a few days later. SUCH A 92-96 BUY AND SELL PATTERN IS THE REQUIRED SET-UP FOR A TRUE SKI BULL MARKET.

What happens if prices do not reach the 92-96 in the next 7 trading days? If prices do not reach the 92-96 index over the next 7 trading days, the possibility of a true bull market will likely be delayed for months (ugh), but since those 92-96 index back prices will be rather high over the subsequent 3 weeks (12.32-13.74), prices could continue to rise to a higher area than the USERX mid-$17 region. The problem is that we need a 92-96 index buy, then a 92-96 index sell, and then the true bull market would require an immediate new 92-96 index buy signal to mark the start of the true bull market period. If the market takes an extra 3 or more weeks to reach the 92-96 index, it will be difficult to obtain that pattern and the next correction would probably drag on in terms of time. But that's looking a little too far ahead to have any hope of clarity.

The latest run patterns are not meaningful or helpful. The bears can state that we did not obtain a bullish run pattern into this past week's possible low and that the last meaningful run pattern was the 1 Down and 6 days Up into Wednesday (12/31/08), the prior high at USERX 10.83.

Conclusion: The market's behavior relative to the SKI indices makes it difficult for me to continue to worry about a bearish 35-39 index sell signal, but I'm back to selling if the 35-39 index does sell. Prices should now be rising again and should go over the last high at USERX 10.83. The interesting and important factor will be seeing when and at what price USERX finally reaches the 92-96 index. I remain long. If/when prices rise close to the 92-96 index, I'll discuss about the pros and cons of selling and what can happen thereafter, but Jeff would be selling."

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.

SKI archives
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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