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Special SKI Report #17
Gold's Technical Status

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

USERX | historicals
Written Sunday, March 11, 2007
Published Mar 12, 2007

Special SKI Report #17

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.

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. 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:

If you're taking the time to read articles such as this one, you're probably bullish on the precious metals' stocks and gold/silver bullion (or perhaps you're invested and nervous?). In a multi-year time frame, I'll join you on the bullish side. However, the indices that I rely upon still do not provide much, if any, support for the beginning of the next major 1-2 year rising phase. The gold stocks have been in a wide trading range for the past 10 months (since the May 2006 high). USERX, the mutual fund that I use as an index for the sector, peaked at 17.96, fell to a low of 13.20, and is currently at 15.08.

The last SKI Report for 321gold (http://www.321gold.com/editorials/kern/kern021907.html) described that the time was ripe for a sell signal on the last SKI index that was still bullish: the "221" index. That long-term index compares the current price to prices from 222, 221, 220, 219, and 218 trading days earlier. I described how that index acts like "a magnet" and I provided the 2001-2006 history of that long-term index. The 221 index has been on a buy signal since 6/06/2005 at USERX 7.20. The 12% one-week decline during the first week of March 2007 sold that index at USERX 15.26 on 3/07/07. Although that signal often marks short-term lows, in the bigger picture, SKI can't get a new bull market phase until that index is on a buy signal.

I have simply been in a "boring" cash position for many months now, racking up an "exhilarating" 4.8% annual money market yield, awaiting the signal for the next impulsive rising phase. I still don't have such a signal. Obviously, the 10-month trading range in the gold stocks will eventually come to an end via a major leg to the upside or downside. Here are the reasons that I expect the break to eventually occur to the downside, setting up one of the better buying opportunities of my 21 years with the gold stocks. Note that none of the reasons listed are fundamental reasons because SKI is purely technical and mathematical. I've reported many of these reasons as they have occurred over the past 10 months (albeit in a delayed manner in deference to SKI subscribers; I hope that you can appreciate the difficult fine-line that I have to walk in providing information to the general public while maintaining a subscription-based website). In chronological order:

1. In May 2006, USERX provided the "death run" starting at the high (the sell point was 5 trading days after the high). Such death runs have marked all of the very major highs since 1974. I've described this in prior Special Reports archived on 321gold. The bottom has always been formed via a "life run". The life run pattern has not occurred, as yet. It may be different this time, but that's what has happened in the big picture from 1974-2007.
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2. SKI bull markets are marked by a 92-96 index buy signal. The 2005-2006 bull market phase, for this master SKI index, ended in early September 2006. The 92-96 index had initiated the bull market phase in August 2005 at USERX 8.09 and ended it with an 84% gain (as previously reported).
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3. The gold stocks had a chance at a new 92-96 index bull market in the November to early December 2006 period. The 92-96 index gave a new buy signal on 11/28/06 at USERX 16.17. I was skeptical that the signal was correct due to #1 above. Although prices rose immediately after that signal, the new bull was stopped out by mid-December. The point is that a failed true bull signal is historically bearish.
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4. The 221 index has now sold in early March 2007.
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5. As other writers have reported, note how the smaller stocks, exemplified by a "sister" mutual fund (UNWPX), have been outperforming USERX since the October 2006 bottom. However, I'm actually not clear as to whether such relative movements are predictive (indicative of speculative froth?) at this particular time.

Please don't use the above "bearishness" (or at least "patience") to conclude that SKI is expecting some immediate and large decline. But the major bottom that has always followed the above indicators has not, as yet, occurred. Such gold stock bottoms, interestingly, are often accompanied by significant selling in the general stock market. I read the gold-bullish articles based upon fundamentals and agree, but the time does not yet appear to be ripe for the next great 1-2 year rise that will cause most gold indices to more than double or triple again.

If you are interested in following and learning more about the SKI indices, 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. 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.

Best wishes,

Jeff (trying to maintain patience and discipline; smile)

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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