Special SKI Report #201
Extraordinary Gold Stock Behavior

Jeffrey M. Kern, Ph.D.
Email: jeff@skigoldstocks.com
USERX | historicals
Written Sunday Apr 1, 2018
Published Apr 2, 2018

Current USERX price = 7.20, Up an extraordinary 35 cents (5+%) 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

The SKI indices and all of these public SKI Reports have been distinctively bearish (without any hedging statements) since the master USERX 92-96 index sold on 1/22/18 (USERX = 7.77, HUI = 197.66) and then became even more bearish when the longer-term master USERX 221 and 442 indices simultaneously sold on 1/31/18. Yes, there was the special 2 Up and 6 Down USERX run pattern into 2/09/18 at USERX 6.75, and such patterns can mark major lows, but that run down only averaged a daily decline of 1.8%. When such runs down average at least 2% per day, they can (often do) mark major lows. That run down was empirically “not strong enough” to mark a major low and the probabilities were very high that USERX would eventually decline to below 6.75. The last SKI Report from 3/11/18 noted that USERX should not go over the little run pattern highs of 7.24 (on 2/15/18), 7.09 (on 2/26/18), or probably even the 3/06/18 high of 7.01.

And then the extraordinary market behavior began. On 3/14/18, with USERX at 6.93, the next day needed at least a 1% decline to keep all of the SKI indices bearish. “Everything” went perfectly on 3/15/18 as the Australian gold stocks declined, the Canadian gold stocks declined, the U.S. gold stocks dropped to a new 2018 low, and the Aussie and Canadian Dollars declined (adding to a USERX decline). But USERX was also strongly impacted by an 11% 1-day plunge in its largest (13%) holding, Klondex Mining (KLDX in the U.S. and KDX.to in Canada) as it reported earnings. USERX DROPPED TO 6.74, FALLING “PERFECTLY” TO 1-PENNY BELOW THAT TECHNICAL 6.75 SPOT, so Jeff was purely expecting that the next major wave down was in progress!

I hope that you find the following personal disclosures to be interesting AND educational regarding “personal and market psychology”. I doubt that you’ve ever read this from a “financial newsletter” (Jeff takes pride in being personal and that’s important when dealing with markets, especially in “knowing thyself”). The following day (Friday, 3/15/18), the gold stocks surprisingly weren’t crashing. They were flat and my estimate of USERX (using its 25 largest stock holdings) was a bearish unchanged. But in the last minute of trading, Klondex Mining bounced around like popcorn and rose 8% in NY and 3% in Toronto. And USERX closed 2 cents higher at 6.76. It was such strange behavior that I wrote to SKIers on Saturday that every few years there is a USERX and/or stock pricing error and that I expected a “correction” of Friday’s USERX price to unchanged on Monday.

I was SO confidently bearish, but when an Aussie SKIer noted on the SKI Forum that he was “counting his profits” and that usually means that it’s time to take the profits on his short positions, I realized that I too was OVER confident and that something “bad” was highly likely to occur (usually instantly). So I awoke early on Monday morning (3/19/18), muted the TV, and checked the gold price, expecting to see a surge higher that would hurt SKIers’ short positions. But it was surprisingly flat, so I went back to sleep comfortably. WHEN I AROSE TWO HOURS LATER AND CHECKED THE COMPUTERS, KLONDEX MINING WAS UP 60%! DUE AN ANNOUNCED TAKEOVER BY HECLA MINING (HL). USERX was going to soar even as everything else was flat to lower again. It was one of the worst market experiences I’ve ever had because I knew that all SKIers (including Jeff) would then wonder whether this apparently anomalous USERX explosion higher would invalidate the SKI indices.

Now you’re going to read some empirical and philosophical perspectives. People have that same SKI-disbelieving reaction when USERX gives a large dividend that drives its price down to generate buy or sell signals, but history has repeatedly empirically demonstrated (since 1974) that “The USERX Price Is The Price” and that the “reason” is irrelevant. All humans (Jeff too of-course) inherently look for “causes” for every little and big event in their lives, every day. If we can just know “why”, the world makes more “sense” and that gives us a sense of control over our lives. The financial media spend most of their time giving “explanations” of “why” a stock or a market sector plunged or skyrocketed. SKI AND JEFF ARE SUPPOSED TO BE PURELY EMPIRICAL AND DO NOT “CARE ABOUT” WHY QUESTIONS that cannot truly ever be answered because there are multiple factors contributing to EVERY life and market event. I did not dismiss the decline to USERX 6.74 because Klondex Mining dropped 11% when it reported its earnings. And when the SKI indices were being developed, we didn’t go back to read the news as to “why” the gold stocks rose on a particular day to generate an index signal or a new run pattern. So, after spending 8 hours contemplating the origin of the universe, nature, G-d, and the belief in free-will vs. determinism, Jeff HAD TO remain empirical (with another bow to Nature, G-d, and even to determinism).

The aberrant 8% rise in Klondex Mining on the day prior to the takeover announcement was obviously “caused by” insider knowledge that won’t ever be noticed or prosecuted. But the “Price IS The Price” for SKI and I dare never change that empirical approach. I am not allowed to care about “causes”.

So I wrote a special report on that Monday evening (3/19/18) urging SKIers to be prudent with short positions and to ensure that they did not let their profitable short positions turn into a loss. Thankfully, no one could have shorted USERX! And if USERX declined the next day, it would complete a special rare run pattern of 1 Down and 2 Surge days Up. 1 Down and 2 Up run patterns are notoriously (80%) bearish, but when the 2 days Up involve a 5+% surge off of an exact low, there’s the XX% historical probability of having marked a major intermediate-term low. Furthermore, if USERX remained above 7.09 on that next day (3/20/18), it would generate multiple SKI index signals that were not consistent with a purely bearish case. Of-course (due to Nature, G-d, and/or determinism), the next day (3/20/18), USERX closed at 7.10 (1-penny above the critical number for that day) and the bullish run pattern completed exactly as the gold stocks (e.g., the HUI) closed at a new 2018 low and Gold NY Cash Settlement Price closed at a new 2018 low by 10 cents!

So SKI, based upon that “silly” USERX, was warning of bullishness just as everything made a new 2018 low. And I frankly got lucky that everything made its low just as SKIers were warned to do some profit-taking on their short positions. But USERX often leads. For example, it bottomed 2 trading days ahead of the HUI/GDX and gold in December 2017 and then generated our buy signal. It topped ahead of every other measure in January 2018 and yielded the SKI index sell signals. Now it did some type of bottom 3 days ahead of everything else and we do not care about the “cause/reason”. This has been occurring since 1974, even as USERX has dramatically changed its holdings over years.

I provided the USERX sell-stop numbers for short positions in the last public Update. The 7.01 and 7.09 stops were activated on the 3/19/18 surge in Klondex Mining and were supposed to be acted upon the next day (3/20/18). The final sell-stop of 7.24 was activated on 3/21/18 (that “just happened to coincide with” the U.S. Federal Reserve announcement day) as everything surged higher.

You probably just want to know if the gold stocks are now bullish or bearish, but the above disclosures should be educationally-important and I enjoyed describing how the market/nature can do “fake-outs”. The USERX run pattern turned intermediate-term bullish on 3/20/18, but it also just yielded a somewhat bearish 1 Down and 2 little Up run pattern as of 3/26/18 at USERX 7.41. The 3/20/18 bullish run pattern is NOT perfect. SKI is very close to multiple new index signals. THE SKI INDICES ARE NOW OPEN TO A MULTITUDE OF INDEX SIGNAL PATTERNS FOR ANYTHING RANGING FROM A CLASSIC SKI BULL MARKET TO A RENEWED MAJOR DECLINE. For now, SKI makes Jeff recommend cash and patience. The situation is likely to resolve within 1-3 weeks. I hope that you know that I didn’t write that last sentence to entice you to subscribe and that you’ve read Jeff/SKI for so many years (as a subscriber or in these public Updates) that you can always trust my honesty while knowing that nothing approaches 100% predictive accuracy. But I still/always say that if anyone can recommend a more valid prediction approach, I’d love it, subscribe, and stop doing all of my SKI work.   

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 daily messages/alerts at a slightly higher price along with access to our informative Forum.

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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.

Copyright © 2002-2023 Jeffrey Kern. All Rights Reserved.

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