Special SKI Report #52
Gold Stock Critical Juncture (Again)

Jeffrey M. Kern, Ph.D.
Email: jeff@skigoldstocks.com
USERX | historicals
Written Apr 5, 2009
Published Apr 6, 2009

Current USERX price = 10.91, Up 3% since the last report 4 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 3/08/09, titled “True Gold Stock Bull Obtained?”, I described how after the gold stocks had risen to expected resistance, the 92-96 index signal on 2/23/09, the ensuing decline had just missed being severe enough to set the stage for a true SKI bull market. Needing a strong decline to set up a bull market may sound paradoxical, but a true SKI bull market requires that the 92-96 index generates a buy signal that is “On the Path”. Since 12/15/09, the SKI path has been on an intermediate-term 35-39 index buy signal and then rose as expected to a 92-96 index signal that was supposed to mark the intermediate-term high. It did mark the high for gold bullion to within a day and also initiated an immediate decline in the gold stocks, but prices needed to decline to sell the 35-39 index and/or the 92-96 index. That would open the Path for the next index buy signal. If the Path opens and the next buy signal is the 92-96 index, SKI would obtain the “true bull market” signal. That did not happen because the decline wasn’t quite severe enough to generate sell signals on either of those indices. So the opportunity for a true bull market had, at least temporarily, been missed (ugh).

Since that last SKI Report, the gold stocks declined just enough to begin moving the 35-39 index towards its sell signal. On Federal Reserve announcement day (3/18/09), the gold stocks were within one day of selling the 35-39 index and opening the SKI Path of Trades. If prices had declined that day to sell the index, SKI would have been set up to generate a new buy signal. You probably remember that day, when the gold stocks were down about 4% in the morning until the Federal Reserve announcement of massive “quantitative easing” initiated an explosion in many asset classes. In just two days, the gold stocks soared 12% and gold bullion rose about $70!

Although many prognosticators probably viewed the Fed’s announcement as being extremely bullish for the precious metals (and it certainly appears to be fundamentally bullish), the last SKI Report also contained the conclusion statement, “Since the 16-20 index just generated its buy signal (on 3/03/09 at USERX 10.25), 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”.

THE RISE OFF OF THAT FEDERAL RESERVE ANNOUNCEMENT WAS NOT FORECAST, BUT PRICES ROSE SKI-PERFECTLY INTO A 16-20 INDEX SELL SIGNAL that was supposed to definitively provide resistance and had a 95% historical probability of marking a secondary high. That 16-20 index sell signal executed on 3/23/09 at USERX 11.77.

The resistance from that short-term index sell signal is supposed to manifest itself within 9-10 trading days from the execution day. That time period represents one-half of the short-term cycle of 16-20 days. Prices can start down the next day or can take up to 10 trading days. The gold stocks then “played around” for 7 trading days and actually moved higher than the sell signal’s execution price on 3/26/09 and again on 4/01/09 at USERX 11.95.

But then, in just the past 2 trading days, prices finally began to decline, with the gold stocks dropping about 9%! Prices have declined enough to start the 35-39 index towards its sell signal. It will take a minimum of 2 more trading days for the sell signal to be generated. Here are the 35-39 index back prices for this coming week:

Monday (4/06/09): 10.79, 10.64, 11.42, 11.38, 11.24
Tuesday (4/07/09): 10.64, 11.42, 11.38, 11.24, 11.59
Wednesday (4/08/09): 11.42, 11.38, 11.24, 11.59, 11.70
Thursday (4/09/09):11.38, 11.24, 11.59, 11.70, 11.35
Friday (4/10/09): Market is closed

Given the current USERX price of 10.91, it is apparent that if prices fail to rise significantly this coming week, the 35-39 index will sell.

Conclusion:

The 92-96 index signal on 2/20-2/23/09 was supposed to mark an intermediate-term high in the precious metals complex. It did mark the high in gold bullion at $1001 and it marked the start of an immediate decline in the gold stocks. But then the gold stocks rose back to and above those February highs into a sell signal on 3/23/09 that had a very high probability of marking a secondary high. That sell signal once again marked the high in gold bullion to within one day at $952.10 and while the gold stocks held up well, they’ve finally plunged in the last two trading days.

As per this report’s title, the gold stocks are at a critical juncture that is very likely to resolve this coming week. Although I’ve been writing how we need a SKI 35-39 index and/or 92-96 index sell signals to set the stage for the next advance, the recent rise to the 16-20 index sell signal has set up a potential DOUBLE SELL pattern that is intermediate-term bearish. It has not happened yet and the gold stocks (as well as gold bullion) are sitting directly on support, but if the sell is generated, prices are supposed to finally decline to the 92-96 index (down perhaps another 15-20%; the actual price target varies each day as the index’s back prices change, so I cannot know the price target if I do not know the day when the index signal will be generated).

My renewed very long-term bullishness (after having been long-term bearish since May 2006) regarding the gold stocks and the precious metals isn’t likely change for a long time (years), but the intermediate-term trend was supposed to have turned down on 2/20-2/23/09 and the gold stocks are still in a precarious position in the intermediate-term. If the market does generate a Double Sell this coming week, the one bright spot is that if prices fail to subsequently plunge, the 35-39 index could generate a new buy signal to signal another intermediate-term leg up. However, that is an unlikely scenario….

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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