Special SKI Report #51
True Gold Stock Bull Obtained?

Jeffrey M. Kern, Ph.D.
Email: jeff@skigoldstocks.com
USERX | historicals
Written Mar 8, 2009
Published Mar 9, 2009

Current USERX price = 10.59, Down 6% since the last report 3 weeks ago.

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 Sunday 2/15/09, titled "True Gold Stock Bull Approaching?", I described how the gold stocks had risen to expected resistance, the 92-96 index, and that if prices declined "properly" (according to the SKI Indices), a true SKI bull market was very possible. I also described how, based upon the past 35 years of SKI history, there was a 92% probability that the 92-96 index signal was marking a meaning high in the precious metals arena and that the other 8% of the time prices went a little higher but still ended up in a meaningful decline. SKI was turning immediately bearish, but if the decline occurred, a true bull market buy signal was possible.

In actuality, at the time that I wrote that last Report, prices had just touched (hit/broken) the master 92-96 index. Mathematically, it takes several days of such "touches" to generate the actual signal, but it was prudent to exit most long positions at that time because the actual index signal was approaching.

The actual 92-96 index signal was generated a few days later on Friday 2/20/09. The index signal then formally "executes" (i.e., one should take action) one day later, thereby always providing a one-day advance warning so that people do not necessarily need to follow the market action on a daily basis. My colleague and I developed that procedure because we had full-time jobs in 1985! One of the nice aspects of a mathematical index is that it is objective and no one can lie about when or if an index signal occurs. I list the history of each signal since the website opened about three years ago and a free graphical representation is available at

http://www.sharelynx.com/chartstemp/SKI-Global-Sentiment.php.

In any case, the day that the index generated was THE closing high for gold bullion at $1001.80 and the index executed one day off of that high. I usually write that the indices mark the critical points to within one day and I am still regularly amazed each time it happens. Don't ask me "why" the indices work because I am an empiricist. Gold then instantly dropped $100 in a week and the gold stocks experienced an approximate 15% decline.

Did that decline generate a SKI bull market?

As per the last Report, "Prices need to decline to sell the 35-39 index and/or the 92-96 index. That will open the Path for the next index buy signal. If the Path opens and the next buy signal is the 92-96 index, SKI will obtain the "true bull market" signal". A SKI signal is generated when the sign of the index changes from negative to positive OR from positive to negative. Here are the numbers:

As of 3/02/09, the index was getting very close to generating the needed 92-96 index signal, but current prices needed to continue to decline to below the back prices. That did not occur as a 16-20 index buy signal was generated (see below).

Conclusion:

Many folks probably skip the somewhat tedious mathematical presentation above and just scroll down to this conclusion's section. I understand how that saves time, but I write these articles for educational purposes (as well as for some advertising), so you can obtain some exposure to the indices' and patterns' reliability over years. The conclusion is that we just missed obtaining the 92-96 index sell signal that would have set up a true SKI bull market. The decline wasn't quite strong enough. Gold did decline for 8 consecutive days and the short-term 16-20 SKI index (that buys on declines) generated its oversold buy signal on 3/02/09 (the closing low to-date for the gold stocks) that executed on 3/03/09 (the intra-day low to-date for the gold stocks). Since the 16-20 index just generated its buy signal, if prices do rise in the short-term, a 16-20 index sell signal will be generated that should mark a secondary high to within a day. I cannot forecast such a continuing short-term rise because this 16-20 index buy signal was "Off the SKI Path". We still need either an additional decline OR the burning up of time so that the 92-96 index's back prices rise enough to allow for the needed sell signal that "opens" the SKI Path. The intermediate-term trend remains down since the 92-96 index signal on 2/20-2/23/09.

My renewed very long-term bullishness (after having been long-term bearish since May 2006) regarding the gold stocks and the precious metals cannot change for a long time, but THE time for skyrocketing prices does not appear to have, as yet, arrived despite the horrid condition of the financial system.

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.

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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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