Special SKI Report #49
The Gold Stock Rise Continues
Jeffrey M. Kern, Ph.D.
Written Jan 25, 2009
Published Jan 26, 2009
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 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.
U.S. markets are closed on Monday 1/19/09 for Martin Luther
Intra-Week Update is not
expected. New material
in the tables and sections in the latter part of each Update
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:
The long-term indices as of
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
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
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: firstname.lastname@example.org.
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