Current USERX price = 11.18, Down 58 cents (5%) since the last 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.
The last gold stock SKI Report, written on Sunday 1/13/13, described bullish run patterns and concluded that “time was up” for the beginning of the next directional move. That Report concluded that the gold stocks still were not in a bull market but that a new buy signal was imminent if prices could hold up during the next week. The 16-20 index resistance had still been stopping any rallies since the 9/21/12 high (ala 11/08/12, 12/12/12, and 1/02/13).
The gold stocks then did hold up enough during the week of 1/13/13 to generate a new 92-96 index buy signal on 1/16/13. Such buy signals had a 90% historical probability of yielding a significant rise and a 10% probability of yielding a quick (usually one-week) loss on a decline to a 92-96 index sell signal. In this case, the index’s back prices were about to begin to rise from USERX 11.70 to the September 2012 high at USERX 13.75. Therefore, the gold stocks needed to rise strongly and consistently to avoid a quick 92-96 index sell signal that would end the buy signal. In the 10% of cases when this buy signal has failed, the sell signal typically occurs rather quickly. Therefore, the set-up was “classic”: Either rise to above the 9/21/12 high over a month or fail and sell quickly.
The 1/16/13 92-96 index buy signal also was “classic” because it was quickly followed by a 16-20 index sell signal (resistance) on 1/18/13 for USERX and on 1/22/13 for the HUI. Therefore, the index pattern was a 92-96 index buy signal that was followed by a 16-20 index sell signal. The longer-term buy signal would either yield a rise through the 16-20 index resistance for the significant gain, or the 16-20 index would once again stop the rise and generate the 92-96 index sell signal.
As of 1/22/13, USERX needed a rise to over 11.86 and then 12.18 the next day in order to stay over those rising 92-96 index back prices from 8/30/12-9/06/12. The major gold stock indices were rising the needed 1.5% on that Tuesday (1/22/13), but USERX disappointed by remaining below 11.86. A large rise was needed on the next day (1/23/13) to avoid the quick 92-96 index sell signal. The gold stocks began to decline on 1/23/13, the 92-96 index generated its sell signal, and Jeff had to send out an Intra-Week Sell Update.
The bullish index pattern had failed and the new 92-96 index sell signal was supposed to be immediately bearish based upon the history of such index signals. The gold stocks did immediately begin to decline, dropping about 7%. The decline generated a new 16-20 index buy signal that executed on 1/25/13 for the HUI and on 1/29/13 for USERX. THOSE INDEX SIGNALS REPRESENT THE FINAL “LINE-IN-THE-SAND”.
The 16-20 index sells on rises and buys on declines. The problem for the bulls is that the new buy signal occurred immediately after a 92-96 index sell signal. That index pattern causes the 16-20 index buy signal to be “XXed Out”. The “XXing Out” means that the buy signal has an 80% historical probability of failing to mark the intermediate-term low. When 16-20 index buy signals fail, the gold stocks usually go into “Armageddon”. There isn’t any SKI index support below. This index pattern allowed Jeff to sell gold at the exact major high on 3/18/2008 at $1005. A failed 16-20 index buy signal also marked the beginning of the final phase of the 2008 crash. But again, the XXing Out is not perfect (nothing is perfect). For example, the XXed Out 16-20 index buy signal on 4/17/2009 marked an exact intermediate-term low.
The bullish case for an intermediate-term bottom needs this past week’s 16-20 index buy signal to have marked a low in the gold stocks. The problem for this bullish case is that the index pattern provides an 80% historical probability that this final index support will be broken to the downside. If that occurs, SKI does not provide any index support and the downside risk is rather unlimited. As the last SKI Report concluded, since USERX is right at the edge of being below ALL of the SKI indices, this failure could result in a dramatic decline that doesn’t have any index targets on the downside (despite the already oversold nature of the gold stocks). The 20% historically bullish probability is that the 16-20 index buy signal did mark a low. It will probably take 2-3 weeks to obtain confirmation (and a rising stop-loss) via a 5% rise into a new 35-39 index buy signal. That still wouldn’t be a SKI bull market, but it would mean that this “line-in-the-sand” has, at least, held.
Gold continues to hold up relatively well. The gold stocks have continued to perform relatively poorly. The last SKI Report detailed a rather “clear/perfect” bullish Elliott Wave count for gold with a bottom at $1626 on 1/04/13. The last SKI Report also described USERX run patterns that were intermediate-term bullish. Those factors continue to support the likelihood that this past week’s 16-20 index buy signal marked “the” corrective low. A decline to below $1626 would “destroy” gold’s wave count.
The bears remember the 2011 Death Run tops in SLV and GDXJ. That run pattern portended a huge decline into an eventual Life Run low. The decline into a Life Run low has not yet occurred. The predictive problem was (and still is) that those measures haven’t existed long enough to validate the run patterns. The Death Run did mark a multi-year high, but no one knows if the ultimate bottom NEEDS to be marked by a strong decline into a Life Run low.
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.