Current USERX price = 14.36, Down a large 12% 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.
In the last gold stock SKI Report written on Sunday 1/17/10, I described how the gold stocks had maintained their bullish 35-39 index buy signal basically since August 2009 and had just touched that index for the 4th time since the high in December 2009. Each of the prior touches had marked a low in a bullish ABC retracement from that December high, but the Report concluded that, “If prices decline this coming week, SKI sells and takes its profit on an intermediate-term basis”. The conclusion furthermore stated, “If it [the 35-39 index] sells, the projection is an approximate 15-20% decline”.
The following trading day (1/19/10) the gold stocks rose and all was okay for continuing intermediate-term long positions, but then, on Wednesday (1/20/10), gold dropped $27 and the gold stocks were clearly declining to below all five of the 35-39 index back prices. You can check and see that the USERX prices from 39, 38, 37, 36, and 35 trading days earlier were 16.05, 16.45, 16.31, 16.74, and 16.18. That gold mutual fund was in the process of falling from 16.45 (just above those 35-39 index back prices) to 15.71 on 1/20/10. THE 35-39 INDEX WAS IN THE PROCESS OF SELLING, JEFF SOLD AND SENT HIS MORNING SELL UPDATE, AND SKI TURNED INTERMEDIATE-TERM BEARISH, projecting an approximate 15-20% decline.
Prices continued down for 8 consecutive days with that intermediate-term bearish 35-39 index sell signal (actually called a “Double Sell” pattern) into 1/29/10 (I’m refraining from adding an exclamation point to the end of that sentence; meek smile). During those 8 days of falling prices, USERX declined from 16.45 to 14.01, or 14.8%.
The critical feature of that decline was what happened to the master 92-96 index: It generated its sell signal on the 8th day of that decline (Friday, 1/29/10). I call it the “master” index because it is the most important SKI index. It’s the index whose buy signals are required (yes, “required”) for a true bull market. People certainly differ in their definitions of “true bull markets”, often due to varying time frames. For me, the many-year trend turned up on 9/11/08 via a life run low after turning bearish in May 2006, and the multi-year trend turned bullish on 8/18/09 via a long-term 221 index buy signal after turning bearish on 7/29/08. But the really large and continuous rises occur during “true bull markets” marked by 92-96 index buy signals. There have only been five such true bull markets since 1974, the 92-96 index buys in 1979, 1982, 1992, 2001, and 2005 yielding powerful annual rises of 50-500%. Those are THE times when the large money is made.
I developed SKI in 1985 for financial survival purposes, as well as for short-term and intermediate-term profits. I invest/risk 50% of my net worth on buy signals. The other 50% is in very conservative long-term interest bearing accounts (paying just 4% per year currently in the TIAA retirement program). If SKI is on a 35-39 index buy signal, that’s a nice profit opportunity (ala August 2009), but it’s not a true bull market that is likely to seriously reduce my dollar (often called “UTP” [Universal Toilet Paper]) purchasing power if I stay in a cashg position. But any 92-96 index buy signal that is On the Path provides for the possibility of a great bull market and the destruction of my conservative retirement cash if I don’t have gold stocks or bullion to retain/enhance my purchasing power.
My only prediction for 2010 for subscribers (seriously) was that prices would decline at some time during 2010 to sell that 92-96 index. Why? Because SKI is very long-term bullish, and in order to get a 92-96 index buy signal and a true bull market, one first needs to get a 92-96 index sell signal! The sell has happened on this recent decline.
From August 2009 until January 2010, SKI was on an intermediate-term 35-39 index buy signal, but not a true bull market. I kept writing that the 35-39 index was the key. When prices declined sharply on 1/20/10, that intermediate-term up-trend was broken based upon the 35-39 index and prices declined to a 92-96 index sell signal. NOW IT IS TIME TO FOLLOW THE MASTER 92-96 INDEX, for the first time really since 2005-2006.
If prices can hold or rise this coming week, the 92-96 index will buy. This past Thursday/Friday (2/05/10) had the characteristics of “a capitulation low”, so the 92-96 index may buy (is likely to buy) very soon. You can follow it yourself by looking at the USERX prices from 96, 95, 94, 93, and 92 trading days ago, or you can pay me the “big bucks”.
A 92-96 index buy signal will provide the potential for a true bull market, but it also must STAY on its buy signal! If it buys and then sells, then the rise has failed. Look at those 92-96 index back prices, please, as they decline to the USERX 14.00 area over the next 7 trading days and then instantly rise to over $15.
I am going to be buying a 92-96 index buy signal (an historical 90% profit probability), if it occurs now, and then will sell/short again if the buy signal fails. I continue to stand by the next to last sentence below (volatile and psychologically difficult precious metals sector, no?).
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.