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Special SKI Report #101
Gold Stock Update

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

USERX | historicals
Written Mar 18, 2012
Published Mar 18, 2012

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.

New Material

In the last gold stock SKI Report written on Sunday 2/26/12 (http://www.321gold.com/editorials/kern/kern022612.html), I described how the gold stocks had risen again into another potential resistance index signal, that I remained in cash, and that the most common outcome would be for another decline to occur shortly. However, I hedged the prediction, noting that gold could still rise to test $1800. More importantly, I described how a brief decline would sell the HUI's 92-96 index's 2/22/12 resistance "buy" signal and that such quick buy-to-sell signals should confirm another top.

In the days after that last SKI Report, the gold stocks rose for 2 days with gold rising into the $1790s, USERX eking out a new 2012 high by 3 pennies, and the HUI/GDX testing their 2012 highs. The "flash crash" in gold on 2/29/12 generated the HUI's 92-96 index sell signal to confirm the top. The ensuing continuing decline has now yielded a regular SKI system potential bottoming pattern that Mechanical SKI does not buy. But the long-term Mechanical SKI system is approaching a true buy signal. The long-term system is composed of the 218-222 index (paralleling the master 92-96 index), the 439-443 index (paralleling the 35-39 index), and the 663 index (that parallels the 16-20 index). Do you understand that we are comparing today's price to prices from years ago and that the long-term system essentially inverts the regular system (i.e., the longest-term index, the 663 index, is the equivalent of the shortest-term index in the regular system)? That's "remarkable" to biased Jeff.

The index signal that is approaching is the 663 index buy signal. It buys on declines and sells on rises (it's a contrarian index like the 16-20 index). The history of 663 index buy signals will now be described via a quote from this weekend's SKI Update sent to subscribers. I dislike having to do this, but in deference to subscribers, I am deleting references to the likely execution date(s) and the time frames for expected subsequent 663 index sells and buys. 663 index buy signals occur in bunches (as a little thought/logic would suggest; how often does USERX go below the price from almost 3 years earlier or rise above the price from 3 years earlier?). We've already obtained one 663 index buy signal this year that was XXed Out but still made a 6% profit (as Jeff had expected). Now we're likely to get the second 663 index buy signal and this one is not XXed Out. And it would not be unusual to get a third buy signal in XXX. There have been 36 such signals in 38 years. If someone mechanically bought each buy signal (irregardless of Paths or XXing Out rules) and sold on a 663 index sell signal, they've made 36 times the initial investment without shorting. That only comes out to perhaps a 10% profit per year but you are out of the market for many years at a time! 30 of 36 buys yielded a gain, but when they lose, they lose BIG TIME. Multiple small (5-10%) gains and then the occasional 30-50% profit. The current set-up would be for just a "small" gain, but in XXX, the 663 index's back prices skyrocket and can yield a large gain. Remember, nothing is perfect and this index signal marks a major critical technical SKI point: A decline through/below a 663 index buy signal that is On the Path should mean that some type of rather disastrous decline is occurring. Nonetheless, THIS 663 INDEX BUY SIGNAL WILL ONLY SELL AT A LOSS IF PRICES REMAIN BELOW THE BUY PRICE FOR 3 YEARS. Do you understand that? Empirically, mathematically, the index cannot sell at a loss unless prices are below the approaching buy-in price for more than 663 trading days and then rises to a 663 index sell signal at below the buy-in price. If you believe in the 2008 Life Run low and/or that the gold stocks will rise over the long-term, you've got to conclude (like Jeff) that the approaching 663 index buy signal will yield a rise into at least a small 5-10% profit over XXX (if prices rise immediately after the buy signal; expected) or longer (for a much larger profit, if prices don't rise immediately after the buy signal; not expected). Again, a rise into a 663 index sell signal and then a brief decline to another 663 index buy signal is set up and makes the most "sense" to Jeff. The subsequent 663 index buy signal, in about XXX from now, may occur at a higher or lower price than this approaching buy signal, but that would be an even bigger critical point than this one, and would be set up for the typical historical large gain.

Conclusion: A true SKI long-term system buy signal is approaching, but I'm refraining from publicly disclosing the time frames in deference to subscribers because these are rare signals that we wait a long time for. If that buy signal fails, it should be "disastrous" (and I'm writing that despite the fact that the last SKI Report mentioned how I refrain from hype and predictions of big moves). If prices rise from this approaching buy signal, as is expected, the long-term system will sell, but then a subsequent decline would simply yield another long-term buy signal that would be potentially highly profitable. The HUI is currently sitting directly on the chart support that connects the major lows since December 2010. I'm wondering whether that support line will be broken, turn technicians really bearish, and then the 663 index will buy OR whether that support line will hold and SKI will still be buying. If the 663 index buys, Jeff is buying again, the first buy since 12/29/11.

The very long-term prognostication continues to be extremely bullish from the 2008 Life Run low despite the relatively poor performance of the gold stocks over the past year. That suggests that the 663 index buy signal, if/when it occurs, will NOT be disastrously broken to the downside.

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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