Special SKI Report #168
Gold Stock Update: Melt-Up or Melt-Down?

Jeffrey M. Kern, Ph.D.
Email: jeff@skigoldstocks.com
USERX | historicals
Written Sunday Apr 17, 2016
Published Apr 18, 2016

Current USERX price = 7.35, Up 78 cents (another 11.9%) 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 3/27/16, provided one clear conclusion: “The gold stocks are now likely to decline to the supportive 16-20 and 35-39 indices over several weeks where I will be looking to buy… You can look back 16-20 and 35-39 trading days to obtain the indices’ prices for USERX and the HUI”.

So, did you look back 16-20 and 35-39 trading days and compare the current price to those indices’ back prices?

After that Report, USERX declined on Monday (3/28/16) to 6.52 and the HUI to 168.04. That decline began to hit/touch the supportive 16-20 index’s back prices. The gold stocks then appeared to surge higher on Tuesday (3/29/16), with the HUI rising 6+% to 181.51 (contrary to the expectation of a continuing correction), BUT USERX only rose 1.3% to 6.60. USERX’s diversified Canadian, U.S., Australian, and other holdings failed to rise very much and served as a warning that the correction was likely to continue. The 1.3% rise to USERX 6.60 continued to hit/touch the 16-20 index, moving it closer to its supportive buy signal.

The gold stocks then continued to decline. THE USERX 16-20 INDEX GENERATED ITS SUPPORTIVE BUY SIGNAL ON FRIDAY (4/01/16). The execution of such buy signals always occurs one-day after the index signal generates (designed to give a one-day advance notice for action). Therefore, the USERX 16-20 index buy signal executed on Monday (4/04/16) at USERX 6.47.

In the regular Weekend Update on 4/02/16, Jeff had to recommend doing some buying on such a supportive 16-20 index buy signal. THE SIGNAL DID MARK THE EXACT LOW (not surprisingly during bull markets). As always, SKI does NOT yield some “instant riches”, prices could have still gone down to the 35-39 index, and Jeff did NOT re-establish a 100% long position (or, “heaven forbid”, a leveraged long position), but the index signal WAS bought.

The gold stocks immediately began to surge higher after that 4/04/16 buy signal. USERX rose for 6 consecutive days, surging 15% to 7.42 on 4/11/16. The 6-day surge rose the “normally strong” 2.5% per day INTO A NEW 16-20 INDEX SELL SIGNAL that executed on 4/12/16 at USERX 7.42.

Such sell signals represent resistance. Furthermore, a 1 Down and 6 Up surge run pattern is hyper-extended to the upside and some decline is expected. Such runs higher typically end at 5 or 6 days Up. The USERX high was on both Day 5 and Day 6 because USERX closed unchanged from 4/11/16 to 4/12/16. That was not a time to buy, but Jeff did buy some more as prices declined during the next two days (on 4/13/16 and 4/14/16 of last week).

Here’s the perspective from a subscriber Update 5-weeks ago: The expression is that “History repeats itself but never in exactly the same manner”. That’s Jeff’s perception when noting the similarities and differences between the 1998-2001 bottom and the bottom that formed from December 2014 – January 2016. IT’S AS IF THE 2014-2016 BOTTOM WAS A MINIATURE VERSION OF THE 1998–2001 BOTTOM. There was a normal/perfect Life Run low at the end of August 1998 (2 Up and 7 big Down days) that was followed by a 40+% rise and then a major index sell pattern that projected about 1.5 years of decline. USERX eventually declined to 20% below that Life Run low, and then played around until eventually the 92-96 index gave a bull market buy signal in early December 2001. This time around, we had a 2 Up and 5 Down run pattern into 12/16/14 at USERX 4.84 that Jeff labeled as a “Mini-Life Run low” (along with an exact 16-20 index buy signal). The gold stocks then rose but eventually declined to a lower low of 4.59 in the Summer of 2015, then played around for 5-6 months and generated the JPOT 92-96 index Double Buy in late January 2016. Since this was a “miniature version” and it was a JPOT bull market buy signal, the comparison suggests that USERX will rise less than the 300% 6-month USERX rise that occurred in 2001-2002. But beyond that, Jeff doesn’t know how to use the comparison for predictive purposes (perhaps you do or perhaps Jeff will as time progresses)”.

Conclusion

Last week’s execution (on 4/12/16) of the 16-20 index sell signal marked the next resistance. A rise above that level has historically yielded a “melt-up rise” into a major top. That’s what happened at the 1979, 1983, May 2002, and May 2006 bull market tops. Such a “melt-up” does not “have to” be a permanent end to a multi-year rise, as per the May 2002 top that “only” yielded at 6-month decline. After all, the very long-term USERX 221 index remains on its buy signal (and will take a year to sell at a profit) and the HUI’s 221 index only executed its synchronous 221 index buy signal just before last week’s strong rise (executing on 4/06/16 at 181.05). Since there isn’t any “certainty” in predicting human behavior, I’d note that the 16-20 index’s sell signal “could have” marked an exact important high. I’ve probably “pissed off” some subscribers by disclosing all of this information, but I’m refraining from discussing the 442 and 663 indices’ very long-term information. Please be “prudent” in what should be a highly volatile environment for the gold stocks as SKI remains on its “special/unique” bull market buy signal(s) from late January 2016.

PLEASE (seriously) let me know if you’ve found a mathematical indicator that is more predictive than SKI (or at least one that is highly predictive) over the past 42 years (31 years of cross-validation). That would greatly reduce my 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 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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