Current USERX price = 11.20, Up 3% since the last report 3 weeks ago.
Introduction (repeated from prior Reports):
I have been using my unique SKI indices to predict price changes in the precious metals' market for more than two decades. And my indices continue to mark the critical points. I have initiated a subscription website since 1/13/06 (yes, Friday the 13th) after having posted free updates for years at www.321gold.com. SKI is a timing service; although almost everyone seems to believe that market timing is impossible, that IS what the SKI indices have done for 36 years.
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.
In the last gold stock SKI Report written on Sunday 4/05/09, titled “Gold Stock Critical Juncture (Again)?”, I described how after the gold stocks had risen to expected resistance (the 92-96 index signal on 2/23/09 that remains the yearly high in gold bullion), they were still supposed to be in an intermediate-term downtrend and were in danger of generating a bearish SKI “Double Sell” pattern if prices declined during the following week.
The gold stocks did decline 4-5% the following day (4/06/09) and the 35-39 index sell signal was executed after a small bounce for a couple of days, selling on 4/08/09 at USERX 10.62. That WAS a Double Sell pattern because the short-term 16-20 index had previously sold on 3/23/09 at USERX 11.77, near the top of the prior rise. Such Double Sell patterns are bearish, as the pattern name is intended to convey.
The 35-year historical probabilities associated with such a Double Sell pattern conveyed an approximate 95% probability that prices would continue to decline. None of the SKI index patterns are perfect, but that was a very high probability pattern! And the decline did continue as prices dropped down to the next index, the 16-20 index short-term oversold buy signal executed on 4/17/09 at USERX 10.14.
The 16-20 index works somewhat like an overbought to oversold oscillator, but unlike traditional technical oscillators (e.g., stochastics), it provides objective signals to be executed the day after the signals are mathematically generated (using a rather simple formula). The 16-20 index signals often mark short-term highs and lows to within a day. THEREFORE, THE 16-20 INDEX BUY SIGNAL GENERATED ON 4/16/09 FOR EXECUTION ON 4/17/09 COULD HAVE MARKED A LOW. It was a SKI index buy signal that was On the SKI Path of Trades.
However, there was one problem or caveat: The Double Sell pattern that preceded the buy signal indicated that there was a high probability that the 16-20 index buy signal was going to fail. Essentially, the Double Sell indicated that the gold stocks were sitting on a precipice on 4/17/09. Therefore, I cannot report that SKI or Jeff bought. The avoidance of such buy signals (which I call “XXing Out the buy”) historically protects us from dangerous situations.
In the ensuing 5 trading days since that signal, the stocks have surged 10.5% higher! And a second buy signal has been generated: A new 35-39 index buy signal. Therefore, SKI is on this new little Double Buy pattern and projects the likelihood of some further rise into another 16-20 index overbought sell signal. That sell signal would end the XXed Out trade and open SKI to the next buy signal.
When one is sitting in cash and the market is rising, there is the “fear of missing the big one”. If the gold stocks rise to the 16-20 index sell signal that is supposed to stop the market and then still continue higher, SKI will be missing that rise because there cannot be a new buy signal until there is some price decline. And most importantly, strong sustained rises that establish new and higher prices levels have never occurred until the Path of Trades executes a longer-term buy signal (usually the true 92-96 index buy signal). Allow me to describe to you THE most bullish 16-20 index set up that has ever occurred. On 12/02/2002, the 16-20 index executed a true buy signal On the Path and not XXed Out at USERX 3.99 (the exact low). Prices immediately rose and the 35-39 index bought 4 days later, the 92-96 index bought the next day, and the 16-20 index sold the following day at 4.34. That was a powerful Triple Buy and was extremely bullish! Prices exploded through that little 16-20 index sell signal, as I predicted publicly on 321gold (I wonder if the Archives go back that far?), but there was one lingering problem: The SKI Path had ended on that 16-20 index sell signal at 4.34. Prices rose to the mid $5 area, but SKI somehow HAD to get back on the path if a long-term advance was to continue. What happened? After that powerful rise, prices then eventually returned to exactly USERX 4.34 on 4/29/03 to another 16-20 index true buy signal at the exact low. The current situation, of-course, is a little double buy between the 16-20 index and the 35-39 index. I cannot guarantee that prices won’t just rise through the likely upcoming 16-20 index sell signal, but I’ll have to severe my neck if that occurs and will still predict that prices will return back down.
The short-term SKI Index gave its buy signal on 4/17/09 and the gold stocks immediately began to surge higher, but it’s still not “right” according to SKI. Prices are likely to rise some more into the next sell signal. If prices rise through that sell signal, I’ll be most perplexed (that’s an understatement). If that overbought sell signal does stop the rise, as expected, the subsequent decline will once again cause me to entitle a Special Report as “Critical Juncture” or perhaps, with more hyperbole, “Super Critical Juncture” because the SKI indices would then be set up for either an extremely bearish “Triple Sell” pattern (the worst pattern possible) OR a bullish 92-96 index buy signal that is executable.
I have to expect that the bullish set-up will occur due to the life run low pattern in the Fall of 2008 that renewed my very long-term gold stock bullishness (after having been long-term bearish since May 2006). But one doesn’t invest based upon “expectations”. We’ll have to see if the indices provide “the big” buy 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.