Special SKI Report #86
Approaching a Tradable Gold Stock High

Jeffrey M. Kern, Ph.D.
Email: jeff@skigoldstocks.com
USERX | historicals
Written Apr 24, 2011
Published Apr 25, 2011

Current USERX price = 19.68, Up another 80 cents (4%) since the 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:

In the last gold stock SKI Report written on Sunday 4/03/11, I described how SKI remained on an intermediate-term (35-39 index) buy signal from 3/17-3/18/11 and that prices were supposed to rise that coming week into short-term index sell signals that would mark first resistance. After that first resistance, prices could either stop out mechanical SKI via a decline to a 35-39 index sell signal or continue the typical sequence of rising further into the major resistance: Rising over the prices from 92-96 trading days earlier and generating the 92-96 index signal where I’d be selling and expecting a (10%?) decline.

What happened? The stocks immediately rose strongly, as expected, into the short-term index sell signal on 4/06/11 at USERX 19.96 and I did some selling at that first resistance. But then, 2 days later, the precious metals surged again and hit the final resistance, the 92-96 index on 4/08/11. Actually, the rise on 4/08/11 made the 92-96 index come within one day of actually generating its signal. That signal would have marked (historically dating back to 1974) the end of the intermediate-term rise. The gold stocks really needed to decline at least .1% (yes, one-tenth of one percent; I’m bragging here about the indices’ precision; smile) on 4/11/11 to avoid that “top” signal. And that’s what happened as the gold stocks declined, thereby allowing for another wave higher in the future into the actual 92-96 index signal.

The declines on 4/11/11 and 4/12/11 were rather large (totaling 6%), but did not hit index support. Gold and silver did make their short-term lows on 4/12/11, but the gold stocks only rose weakly and then fell along with the general stock market on 4/18/11 to a lower low (USERX = 19.05). Here’s what I wrote in my daily message:

“SKI Message 4/18/11 3:30 PM PST
USERX = 19.05, Down 28 cents (1.5%)

IS THAT FINALLY THE SHORT-TERM GOLD STOCK LOW? I VOTE "LIKELY".

The gold stocks fell to hit/touch the indices! MULTIPLE INDICES. The 884 index was touched/hit as USERX fell below 3 of its 5 back prices. That suggests support (hitting a low). The USERX 16-20 index was at 19.03 today, so it was hit/touched intra-day but not on a closing basis. The HUI's 16-20 index was clearly hit/touched during the day and then closed above those back prices. That's the same as USERX and suggests support. Lastly, the HUI 92-96 index was hit/touched today as the HUI closed below 2 of its 5 back prices. It still does not look likely that the HUI's 92-96 index will actually generate a sell signal because that has been avoided by "one-day" multiple times during the past year and this opportunity to sell the 92-96 index does not look "particularly promising" to end this HUI bull market signal. So that's hitting/touching apparent support too.

With prices falling to touch/hit multiple indices simultaneously, this actually looks like the short-term low that I have been searching for over the past week. I've been looking for a sign of a low over the past week and today/tomorrow appear to be likely candidates for the low. And with a USERX 19.21 entering the critical 35-39 index's back prices tomorrow, this is clearly the short-term critical moment.”

Since that short-term low on 4/18/11, the gold stocks have risen for 3 trading days and are still “supposed to” rise into the final resistance index (the 92-96 index) and make a new annual high. With gold and silver bullion having risen for 7 consecutive trading days, that run up is historically highly likely to end via a down day on this coming Monday or Tuesday (4/26/11), but I’ve still got to expect the rise into the 92-96 index top. If you go back 92-96 trading days, you’ll see that those back prices begin to decline this coming Monday (4/25/11) to include USERX 22.11 (the 12/06/11 high), 21.54, 21.22, 21.26, and 19.71.

Conclusion:

With USERX currently at 19.68, the expected rise will soon generate the 92-96 index signal (date reserved for subscribers) and I will be selling my gold stocks purchased on 3/17/11 and hedging my physical bullion holdings for an expected decline back below the 92-96 index. Such 92-96 index signals on rises have a very high historical probability of markings exact closing highs (ala the most recent example of 3/04/11-3/09/11) with a standard deviation of one trading day. If this expected rise does not occur, the stop-gain will be the 35-39 index sell signal that is currently a little below the market.

I’ve been writing since January that the gold stocks entered a “new phase” during which rises would hit index resistance. But now, if the expected rise into resistance and subsequent decline occur, the indices are set up to end that “crappy phase” and commence a true SKI bull market this summer. So, while many analysts have been complaining that the gold stocks haven’t been adequately outperforming the metals due to various fundamental reasons, it hasn’t been technically surprisingly and that situation should change if the SKI indices go onto a true bull market signal in the coming weeks! But for now, Jeff should be selling and/or hedging everything “soon” on an index signal.

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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