Current USERX price = 16.16, Down 1.5% since the last report 4 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 4/11/10, I described, for the THIRD consecutive Report spanning 9 weeks, how a true SKI bull market opportunity was presenting itself but could once again get stopped by a decline. Such opportunities involve the master 92-96 index: True bull market REQUIRE a buy signal from the master 92-96 index that is On the Path. Such buy signals do not guarantee a bull market (there are false or incorrect buys since 1974 that sell out quickly with a loss), but all bull markets (where the gold stocks rise for about a year to a new level and at least double) have only occurred when the 92-96 index is in control and giving a buy signal. They are rather rare events and since 2000, despite the overall rising trend in the precious metals sector, have only occurred in 2001-2002 and 2005-2006, but those periods accounted for the majority of the rise in the gold stocks over the past ten years.
That last SKI Report described how the 92-96 index HAD bought again but that if the rise did not continue, SKI would be stopped out once more. A short-term high had occurred on the Friday (4/09/10) right before I wrote that last Report and the 92-96 index then sold just a few days later (4/15/10). Mechanical SKI lost 1.5%. I lost .75% because I had only invested 50% on the buy signal due to more complicated/refined concerns regarding the SKI index set-up.
In the days after that sell signal, the gold stocks did experience a significant decline. They have been very choppy since the bottom in early February 2010 and that choppiness continued as the decline ended and another rise followed.
The 92-96 index then did it again, buying back on a wild market day on 4/27/10. It hadn’t gotten whipsawed too badly, buying back just .33% higher than when it sold on 4/15/10, and the gold stocks and bullion immediately rallied for three days into last weekend (4/30/10). These 92-96 index whipsaws over the past several months are unusual and frustrating, but these are the index signals that provide for the infrequent opportunity for large multi-month (or longer) rises, they are the ones that conservative investors wait for, and they are the ones that can get stopped out quickly for small losses. This last buy signal on 4/27/10 looked to be valid enough and important enough that Jeff even added to his long-term gold coin position at around $1155. That seemed to me to be a rather high price to pay, but if this buy signal is valid, gold and mining stocks are actually just at the beginning of a major rise. At that time I wrote that the fundamental theme behind such a long-term rise would probably be “sovereign debt crises”.
Of-course last week was a wild time for most market sectors. The general stock market plunged and gold bullion skyrocketed along with the U.S. Dollar in an apparent “flight-to-safety”. The gold stocks were caught in the middle between the rise in bullion and the decline in the stock market, with the smaller mining companies losing more than the large producers.
In my 25 years of experience with the gold stocks and bullion, I have seen quite a few spikes higher in gold that followed some news event and that appeared to be due to “safety buying”. They have all been reversed (meaning that gold declines) within just a day or three. But none of them have ever occurred while SKI was on a true bull market 92-96 index buy signal. There are, in fact, suggestions that there will be organized currency intervention efforts tonight and/or tomorrow (Click here). I have no idea if such intervention will occur and even if it does, whether a rise in the Euro will cause the gold stocks to decline via a potential short-term decline in the gold price or whether the gold stocks would rise due to a short-term rise in the stock market. I just follow this 92-96 index buy signal from 4/27/10 and the long-term bullish SKI signals: The life run low buy pattern from the Fall of 2008 portended 5+ years of rising gold stocks and the 221 index buy signal on 8/18/2009 portended at least several years of rising prices. Those bullish long-term signals caused me to expect a true bull market buy signal in 2010 and now, that one of these important 92-96 index buy signals is going to be “a big one”.
Last week’s market decline likely triggered readers’ worries that the general stock market will collapse and take the gold stocks down in a deflationary spiral based upon the memories from 2008. There certainly are plenty of analysts predicting such a decline.
But last week’s decline did not cause the 92-96 index to sell. Take a look at this chart of the SKI indices (usually reserved for subscribers):
You should be able to see where the gold stocks (USERX) rose over the green line to generate the 92-96 index buy signal for execution on 4/27/10, but more importantly, how the gold stocks rose above all of the indices.
Last week’s decline brought prices back down to the short-term indices’ support (the blue line; the 16-20 index) AND to the faded blue line (the 660-664 index). Both of those indices are SKI’s contrary indices: When prices fall below the indices’, a buy signal is generated and vice versa. If you don’t believe in these highly unusual “SKI indices”, this is another example supporting their cycle validity: It’s common for these two indices to give simultaneous signals even though one index compares the current price to prices from just 16-20 trading days earlier and the other index compare the current price to prices from almost 3 years earlier (660-664 trading days earlier).
SKI and Jeff are long the gold stocks at this time due to the 92-96 index buy signal, but we’ve reached (EXACTLY) another critical point due to the generation of those other index signals. If a specific price action occurs tomorrow (5/10/10) as those short-term index buy signals execute, it will provide significant confirmation that the gold stocks are just starting the acceleration phase of this potential bull market. That’s the “come-on” sentence to induce you to subscribe, but it’s the truth, and it’s the way that other bulls have gotten “rolling”. If it does not occur tomorrow, the 92-96 index is likely to sell again within the next 1-2 weeks and maybe those deflation fears will reach fruition, but that’s not what objective SKI is indicating at this time. If the gold stocks behave “properly” tomorrow, we should be “lifting off” after several years of going nowhere (they really have not gone higher since the last SKI bull market ended in 2006 despite the rise in gold bullion prices since 2006).
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.