Special SKI Report #102
Gold Stock Nausea

Jeffrey M. Kern, Ph.D.
Email: jeff@skigoldstocks.com
USERX | historicals
Written Apr 8, 2012
Published Apr 9, 2012

Current USERX price = 11.69, Down another 81 cents (6.5%) 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 last gold stock SKI Report, written on Sunday 3/18/12, concluded with the idea that a 663 index long-term buy signal was approaching. But the hedging statement (the alternative) was “If the approaching 663 index buy signal fails, it should be ‘disastrous’. The HUI is 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”. The Report then continued to conclude that it was UNlikely that the approaching 663 index buy signal would be broken to the downside.

Those predictions were rather perfectly correct and then perfectly INcorrect. The long-term 663 index executed its buy signal on 3/20/12, two trading days after I wrote that report. I knew that the index would execute on 3/20/12 when I wrote that last Report, but I wasn’t publicly disclosing the day. Remember how 3/20/12 was the day that the gold stocks gapped lower and the HUI opened below the long-term obvious support line on the chart that connects the lows since December 2010? And then the buyers came in, with the HUI and GDX actually closing higher for the day (3/20/12)? It looked like a perfectly bullish reversal marked by the long-term 663 index buy signal. BUT THE PROBLEM WAS THAT USERX (and most gold stock mutual funds) did NOT close higher that day. Nonetheless, the 663 index appeared to have marked a low on 3/20/12.

That continued to be true until this past Tuesday and Wednesday (4/03/12-4/04/12). The gold stocks clearly gapped below the 663 index’s 3/20/12 buy signal and once again, below the long-term support line connecting the 2011 lows for HUI and GDX.

USERX is now below ALL of the regular system’s and the long-term system’s indices and that’s not bullish (but it certainly is getting more and more long-term “oversold”).

The only remaining SKI index is the “experimental” 884 index. It’s “experimental” because it’s such a long-term cycle that 38 years has not been enough time to really validate this index. The index signals often mark critical points (e.g., it was hit/touched on the exact low in 2008 at USERX 7.08), but it isn’t clear whether the index signal is marking “a low” or “a disaster” as of this Monday. Yes, it’s critical and it looks like a “disaster” that is about to culminate.

The USERX 884 index executes a buy signal on Monday and the HUI is executing a long-term 442 index sell signal on Monday. Frankly, those two long-term indices aren’t executing index signals simultaneously due to fortuitous circumstances (okay, I’m biased, but this IS what happens at critical points). The 884 index’s back prices are now in the process of declining to the 2008 crash low in the USERX $7.08-$8 area over the next month (i.e., NOW). I don’t believe that it is a random coincidence that those index back prices have just started to drop. The index’s back prices now include 12.45, 10.87 (note the crash), 11.06, 10.30, and 10.34.

Conclusion:

The 3/18/12 Report stated that a major bottom was approaching via a long-term 663 index buy signal. The hedging (alternative prediction) was that a break below that buy signal would suggest “disaster”. The buy signal appeared to mark a low perfectly on 3/20/12, but the gold stocks declined too much last week (falling below the 3/20/12 buy signal). Last week’s decline yielded the very bearish short-term and intermediate-term alternative because USERX has dropped below the 3/20/12 663 index buy signal. USERX is below ALL of the SKI indices for the first time in a decade and the last known index, the 884 index, is currently exactly in the process of plunging down to the 2008 low at USERX $7-$8. Folks, the gold stocks have reached the point of producing nausea in the pits of current investors’ stomachs (and Jeff’s), but the capitulation decline could still (easily) have just begun. That means another large drop over the next month. But, in the long-term, do you believe that USERX will remain below the 663 index’s buy-in price of USERX 12.41 for more than the next 663 trading days (3 years)? That’s the only way that the long-term mechanical SKI buy signal can sell at a loss, but that’s a long-term SKI statement.  

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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