Current USERX price = 16.65, Down 5.5% 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 the most informative gold site, 321gold, since its inception approximately seven years ago. 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 34 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 on 4/20/08, I described how the SKI indices were (1) prognosticating a decline, (2) were marking a pending head-and-shoulders top formation that would be activated when USERX closed below the 16.89-16.95 area, and (3) might generate a true buy signal on such a decline if prices remained flat for another 5-6 trading days. This current report is rather detailed and technical, so I don't know how many people will want to "suffer" through it, but I love these precise and important details because SKI depends upon them. In any case, what happened after that 4/20/08 report?
Prices went straight down. Therefore that possible index buy signal did not occur as prices fell from USERX 17.68 on 4/19/08 straight down to 16.35 on 4/24/08, and then went down again to 15.54 on 4/29/08. Of-course gold and silver bullion tumbled along with the gold and silver stocks. But the decline occurred via a special SKI run pattern (see the introductory material above or the website educational material at http://www.skigoldstocks.com/about.php for a definition of "run patterns"). The last Special Report for 321Gold also described how I was looking for a rare and special run pattern to mark a major low in the gold stocks; a run that I refer to as a "life run" low that parallels the May 2006 "death run" high. Life runs and death runs are identical, but the death run occurs at a major high and the life run occurs at a major low. Both run patterns are defined as requiring two consecutive days of higher closing prices followed by five or more consecutive days of declining prices that average at least 2% per day. Historically (since 1974), it has always taken at least two years to obtain a life run low after a death run high. Since it is almost two years since the May 2006 death run high, I wrote how the time window was now opening for the life run low.
The gold stocks rose for exactly two consecutive days on 4/15/08 and 4/16/08 to form the high that I wrote about in the last report. They then had declined for 2 consecutive into the weekend when I wrote that report (4/20/08). PRICES THEN WENT STRAIGHT DOWN FOR ANOTHER FOUR CONSECUTIVE DAYS. Therefore, the run pattern was 2 Up and 6 Down!
Was that the life run low? Prices have certainly been rising in the last two weeks, but the run pattern just missed meeting the required definition. I didn't develop that definition based upon a theory. I discovered it empirically. When I examined every possible run pattern, I found that when prices go two days up and a long hard run down, when the down run ends, an important bottom has occurred. That 6-day run down WAS long enough, but it wasn't severe enough to meet the definition. USERX fell from the high of 18.34 on 4/16/08 to 16.35 on the sixth day down on 4/24/08 before having a small up day on 4/25/08. 18.34 down to 16.35 is a decline of 10.85%. Therefore, the average daily decline was "only" 1.81%.
Your reaction may be the same as some subscribers who kept emailing me that 1.81% is close enough to 2% and that nothing can be that precise in regards to the markets and human behavior. However, there have been many 2 up and 5+ down runs averaging 1.8%. They have not marked the major bottoms. In fact, the most common pattern after such a 1.8% down run is for prices to rise for 1-2 days and then fall 4-8% in the next 1-2 days to mark a low. That IS what happened as prices rose for one day and then fell from USERX 16.42 to 15.54 (5.4%) over two days into 4/29/09. Gold bullion, which is often even more psychologically perverse than the gold stocks, made its low on 5/01/08, but the gold stocks held above that 15.54 low.
Please understand that "run patterns" provide probability statements. The only run patterns that have been 100% correct (to date) have been the rare and very long-term death and life runs. They've only occurred 8 times since 1974. Therefore, although that 2-day plunge had an approximate 80% probability of marking a low, conservative Jeff (that's me) could only write that it would be prudent to close any short positions. I didn't buy, but some readers who are more risk-tolerant, certainly bought that oversold condition.
The run down several weeks ago did not meet the criteria for a life run low, but the subsequent 2-day plunge was historically consistent with "some type" of low. When SKI index signals coincide with the due date for these Special Reports, I am in somewhat of a quandary because I have to respect the rights of the subscribers. That's what occurring again now. Hence I can't provide the SKI directional call at this time (of-course this type of situation appears to be rather self-serving since it encourages subscriptions; meek smile). I can reiterate that we experienced a low several weeks ago as gold fell to test its long-term breakout point at $850 and that we have not, as yet, obtained a true life run low. The next important confluence of Time X Price according to the index back prices depends upon the magnitude of this coming week's price movement, but as of today, it appears to be setting up for 7-10 trading days from now. The prior Special Report described the term "confluence" via the high from 4/16/08, but a "confluence" can occur at either a high or a low.
Have a warm interpersonal Mother's Day, best wishes, Jeff
P.S. My 2 sons are coming
over to swim and eat for Mom's Day, so I've got to stop writing
and start cooking. It's a gorgeous day in Las Vegas!