Current USERX price = 17.85, Down 8% 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
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 on 3/08/08, I described how the SKI indices were on a major buy signal, a master 92-96 index buy signal, from 3 weeks earlier at USERX 17.55 and April gold at $910. The situation was described as "relaxing" because the SKI 92-96 index sell stop was rising each day; if the 92-96 index generated a sell signal, SKI and I would simply sell. I also reported, "THE STOP KEEPS RISING FOR THE NEXT 11 TRADING DAYS (except for this coming Monday, 3/10/08). The prediction has to be that USERX will hit new century highs (over 20.84) in 9-11 trading days from now and probably will do it on that 11th day".
First, note the comment regarding Monday, 3/10/08. The stop was falling that day and prices declined rather strongly on 3/10/08 to hit the 92-96 index, with USERX falling over 3% to 18.80. That index had bought and was the primary indicator (the SKI signal that was on "the Path" and had generated its buy signal 3+ weeks earlier). I couldn't predict that prices would fall on 3/10/08, but my comment reflected the fact that such a decline was "allowed" to happen. When prices fell back to that index, another rise was due. That was the short-term low and prices rose for another four trading days to USERX 19.93. Let's look at the 92-96 index at that time in terms of straightforward math. The mathematical formulas for the indices are public knowledge (see http://www.skigoldstocks.com/about.php for the formula explanation. The daily index numbers are, of-course, maintained on the website).
Take a look at how the market "interacted with" the 92-96 index since the last Special Report. It may have some effect on your beliefs regarding the gold market:
1. On 3/10/08 the USERX prices
from 92-96 trading days earlier on 3/10/08 were:
4. The next day (3/13/08; Is
this getting boring?) the gold stocks experienced a strong rise
that the index really needed as the back prices (the stop) kept
rising. USERX rose a little more than 2% to 19.80, rising over
4 of the 5 index back prices that were:
5. The next day (3/14/08) gold
and the gold stocks rose for their 4th consecutive day, with
USERX closing at 19.93, a new high. The index back prices had
now risen to:
6. After rising approximately
$30 in Sunday overnight trading, gold closed higher on Monday
(3/17/08) for the fifth consecutive day, but the gold stocks
declined. The 92-96 index was on the verge of being stopped out!
The USERX price of 19.71 was now BELOW 4 of the 5 index back
The critical index day had arrived. Gold was moving higher in the morning and the general U.S. stock market was also higher, but the gold stocks were down! A major problem for bullish SKI was that gold had closed higher for 5 consecutive days: The odds were 98% that it would close down on this 6th day and even more concerning was the fact that if gold closed higher for its 6th consecutive higher close, the odds were 99% that gold would decline the next day (Note: COMEX gold prices are used in these gold bullion run analyses and the COMEX close is at 1:30 Eastern Standard Time; COMEX gold was going to close before the Federal Reserve announcement). Even if the gold stocks ended up rising after the Federal Reserve announcement, they also needed to rise the next day to avoid the 92-96 index sell signal. However, there was a 99% probability that gold would decline the next day, thereby making it more difficult for the gold stocks to close higher.
Therefore, using the above reasoning, Jeff (that's me) sold all of his gold at $1007 during the morning of 3/18/07 while it was still up for the day and sent a sell alert to traders. (I know that you're probably reading, after-the-fact, that every analyst sold at the high, but I did sell gold at that point). Gold closed higher for its 6th consecutive day (that was dangerously bearish, at least on a short-term basis). The gold stocks continued to decline after the Federal Reserve announcement. Therefore, the 92-96 index WAS going to generate its sell signal. At 2:30 P.M. EST, the traders' alert was sent to sell the gold stocks. USERX closed at 19.17, down 3%. It had closed below all 5 of the index back prices.
When the sell signal was generated, the selling intensified, and the precious metals plunged the next day (3/19/08; Gold down $59 and USERX dropped 5%).
Conclusion: So, the powerful buy signal from 5 weeks earlier had been unexpectedly stopped out and a SKI Sell Update was sent to all readers that afternoon. The prediction from the prior SKI Special Report, "that USERX will hit new century highs (over 20.84) in 9-11 trading days from now and probably will do it on that 11th day", was proven to be WRONG. However, that's why we have objective SKI indices: One can't rely on predictions, just the indices. That WAS a relaxing period because of the objective indices. The end result was that Jeff netted about an 8% increase is his net worth (since Jeff puts all of his non-retirement funds into gold and the gold stocks when SKI generates a true buy signal). SKI officially sold at the end of that next day's large decline and netted only about a 4% profit. If you read the website's services descriptions, you'll see that Jeff attempts to help traders "beat the objective SKI indices" by a day. That was once again accomplished. But this experience highlighted the problem with using mutual funds as investment vehicles: The funds, particularly USERX and UNWPX, out-perform the ETFs when SKI is on a long-term buy signal, but the inability to sell at the market open is a disadvantage when SKI unexpectedly gets stopped out.
The final profits from that "powerful index buy signal pattern" were rather disappointing due to the much greater index-based expectations. HISTORY SHOWS THAT WHEN POWERFUL SKI BUY SIGNALS UNEXPECTEDLY FAIL, IT IS NOT A BULLISH SIGN. So, the prediction is for lower prices ahead, but once again, the prediction is not as important as the SKI indices. If SKI returns to a buy signal over the next three weeks, it will be time to buy again. In my somewhat biased view, the market's behavior in relation to the 92-96 index over those 5 weeks supported the validity of the index for the XXXth time over the past 34 years. Although I would have preferred to have made more money, the validity of the indices is most important; the indices hold the key to my future trading and investment outcomes.
If you are interested in following and learning more about the SKI indices, I'll write another Report for 321gold 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. 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.