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Special SKI Report #15
Approaching Gold Critical Point

Jeffrey M. Kern, Ph.D.
Email: jeff@skigoldstocks.com

USERX | historicals
Written Sunday, January 28, 2007
Published Jan 30, 2007

Special SKI Report #15

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 the most informative gold site, 321gold, since its inception approximately six years ago. 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 32 years and that is what they will continue to do!

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 at http://www.skigoldstocks.com/about.php. 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 Special Report on 1/06/07 for 321gold I reprinted a one-week old SKI Update that warned of an impending decline beginning at the start of the New Year. That one-week delay resulted in the posting of that bearish Special Report after gold had already dropped about $40 in the first week of the New Year, right near a low in gold and the gold stocks. So please be wary of extrapolating from delayed reports. Nonetheless, today's Special report contains another one-week delayed SKI Update sample. This time the gold stocks have risen during the week since the Update (below) was sent to subscribers. Note the critical numbers described in the Update (below). In particular, note the USERX 15.52 point. Prices rose to exactly 15.51 on Tuesday (1/23/07) and then rose above/through that point the next day. USERX is currently at 15.67. The SKI indices truly mark the critical points, but don't always indicate the correct direction (i.e., I can tell in advance when the critical moments will occur, but may still be incorrect on the direction off of those critical days, so SKI is NOT nirvana).

The reprint below describes the likelihood that a 92-96 SKI index buy signal would occur in about 7 trading days from 1/20/07. That will be this COMING Tuesday (1/30/07) or latest by Wednesday (1/31/07). That report also mentions the importance of the 16-20 index; whether that index generates its sell signal before or after the 92-96 index buy signal. This past week's rise has set the stage for multiple SKI index signals for Tuesday or Wednesday of this coming week. I'll know tomorrow (Monday, 1/29/07) which day it is. The precious metals' market is at another critical point as of this Tuesday/Wednesday (and of-course the Federal Reserve will report on Wednesday; no surprise there).

I hope that the reprint below (albeit delayed one week) makes for some interesting and informative reading. I'll write another Report for 321gold in a few 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.

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Reprinted Update (delayed by one week in deference to subscribers):

SKI Update

1/20/07

Update Summary: Current USERX price = 15.00 Current Position: Cash.

Bottom Line: Cash. Prices just missed hitting/touching/breaking resistance at 15.23 on a closing basis this past week as the gold stocks under-performed relative to the rise in gold bullion. The 15.52 resistance point remains for this coming week but the 15.23 back price is gone and the new critical point in time and price begins this coming Wednesday (1/24/2007) as the 92-96 index back prices fall to the current price level and then continue to drop. A new 92-96 index buy signal could be generated in 7 trading days, but it is XXed Out.

This was another fairly quiet week in the gold stock arena despite a continuing rise in gold bullion. USERX actually fell about 1% for the week. You'll see that the tables in this Update haven't changed much since last week and that there aren't any important run patterns or index signals. On Thursday (1/18/07), prices were finally rising enough to make the expected hit/touch/break of the 35-39 SKI index, but then quickly reversed to the downside for a bearish-looking "key reversal day down" (i.e., a higher intra-day high coupled with a lower intra-day low and then a close below the prior day's low). Friday's lack of follow through to the downside indicated that while that 15.23 was resistance, the gold stocks were not ready to begin another leg down. Unfortunately, key reversal days, in and of themselves, are only slightly more than 50% correct in marking continuing reversals in the gold stocks. Yes, I still don't have a clear way of making money in these gold stocks and am just making the 4.5-5.0% money market rate.

I also can't make a short-term prediction here. That 15.23 resistance has now left the back prices, so prices could rise up to the 15.52 resistance price that remains in the 16-20 index back prices. More importantly, the 92-96 index is now coming into the picture again. Its back prices begin to plunge from the September 2006 price decline. In three trading days (on Wednesday, 1/24/2007), the 92-96 index back price drops from 16.04 to 15.07. IF PRICES STAY OVER 15.07 INTO THE FOLLOWING WEEK, AN XXED OUT 92-96 INDEX BUY SIGNAL WILL BE GENERATED.

I'd prefer for prices to simply fall and avoid that 92-96 index signal. Such a decline should be the final leg down in the first part of the decline from the early December 2006 high (the potential top of the "X" Wave). As previously described, the decline would probably stop above the June and October 2006 lows; the decline would be about 6-9% down from current levels with gold at perhaps $580. Prices would THEN rise to the XXed Out 92-96 index buy signal marking a "B" Wave high and then the final decline would take prices down to USERX 11.00 with a life run buy pattern. Gold would probably fall to below $540. And Santa Claus is real (smile; I seriously expect that "life run" buy pattern but it usually occurs when I DON'T EXPECT IT; however, I've only had two chances to expect it in the last 21 yrs, occurring in 1993 and 1998).

IF the 92-96 index XXed Out buy signal occurs in about 7 trading days, it will present some interpretative problems. MECHANICAL SKI WILL NOT BUY IT BECAUSE IT IS XXED OUT (that is clear). The interpretative problem arises because of the 16-20 index. I have described this point in prior Updates but don't expect that everyone can remember everything. Usually, a 16-20 index sell signal occurs as prices rise to a 92-96 index buy signal. That means that the market is short-term overbought and prices should decline when the 92-96 index buy signal occurs. When there is no such 16-20 index sell signal PRECEDING (or tied with) the 92-96 index buy signal, prices usually RISE, at least short-term. For example, in December 2006, we had the true 92-96 index buy signal that was not preceded by a 16-20 index sell signal. Although I was skeptical of that buy for other reasons, prices still rose 5% over a few days. In August 2005, we also had a true 92-96 index buy signal that was not preceded by a 16-20 index sell signal. I wasn't very skeptical of that one, prices immediately rose about 6%, and the true bull was alive.

This time around, the 16-20 index may generate its sell signal about 2 trading days AFTER the 92-96 index buy. That pattern can be bullish; If the 92-96 was NOT XXed Out, such a pattern would clearly indicate that prices would rise through the 16-20 index sell signal for an impulsive market rise. I will go into greater detail next weekend IF the 92-96 index is approaching that buy signal (i.e., prices stay over USERX 15.07 into the end of this week). The XXing Out provides a 78% probability that a 92-96 index buy signal will lose money. Furthermore, I will have the same concerns that I wrote extensively about at the time of the December 2006 92-96 index buy signal that ended up losing 3%. Nonetheless, readers who are immediately bullish (really bullish) can take heart in the possibility that we'll get that buy signal, that the XXing Out is wrong, that the "death run" is wrong, and that SKI will be in big trouble as the next leg of the decade bull resumes via a 92-96 index buy signal on the Path!

Head and shoulders pattern Update: The head-and-shoulders top in the gold stocks remains intact and potentially bearish. However, gold bullion has been much stronger than the stocks and has risen further than expected in the last two weeks. Such under-performance by the gold stocks is, of-course, usually warning of an imminent decline, but gold is close to breaking the head-and-shoulders top pattern. A rise in spot gold above the highs (right shoulder) on 1/03/07 and 12/05/06, above the $648-655 area, would clearly negate its head-and-shoulders top.

Personal Observations: The U.S. stock market continues to refuse to decline in any meaningful manner. I thought that all the gold writers were predicting that gold and the stock market would "cross"; that the Dow:Gold ratio would reach unity/one? What's going on? The gold stocks generate a "death run" and the stock market continues on its rise from its September 2001 "life run" (the 5 consecutive strong down days after 9/11/01). And I've been receiving numbers of emails from readers indicating that they are temporarily avoiding focusing on the precious metals in order to focus on the S&P, QQQQ, etc.. I respond to them that they may be correct based upon the death/life run information, but it seems a little late to board the stock market. Nonetheless, the stock market life run is still alive after 5 years until we see exactly 5 consecutive strong (1%+) closes in that market's broad indices. We should be getting close to witnessing such a spike top (i.e., stock market "death run"). I also don't belong to the club that believes that stock market declines help the gold stocks rise. In a very long-term sense such an inverse relationship has some validity, but not over periods of weeks or months. Hence, one usually witnesses a severe decline in the stock market as the gold stocks decline and then bottom via a life run in the gold stocks (and a temporary bottom in the general stock market).

Lastly, I was reading the Aden Sisters' recap of the year 2006. They reported that the gold stocks (HUI) rose about 14% in 2006. Do you realize that the vehicle which I recommend, USERX, rose from 10.70 on 12/30/05 to 16.07 on 12/29/05 for a 50% gain. I understand that non-U.S. citizens have difficulties purchasing USERX, but I continue to recommend this fund when SKI buys (unless one is interested in the small juniors and exploration stocks). And have you noticed what's happened to the stock of the mutual fund company that runs USERX (U.S. Global Investors; symbol GROW), since I warned that it was going parabolic back in early December (another reason for my skepticism regarding that true bull market buy signal)?

chart courtesy of StockCharts

Continuing to be patient,

best wishes,

Jeff

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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Copyright © 2002-2019 Jeffrey Kern. All Rights Reserved.


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