Current USERX price = 17.02, Down a large $2.66 (13.5%) since the 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 4/24/11, titled “Approaching a Tradable Gold Stock High”, I described how I was expecting a down day within the next couple of days due to gold’s 7 consecutive daily rises and then a rise into the 92-96 index signal that would mark a tradable gold stock high plus a likely high in gold when I would probably hedge my core physical gold holdings. Although I had to refrain from publishing the expected date of that high, it was May 2, 2011.
Subsequent to that report, gold rose a record-tying 8th consecutive day while the gold stocks declined. That decline continued the prior week’s pattern of a negative (bearish) divergences between gold (rising) and the gold stocks (declining) and despite the expectation that prices would rise into May 2nd, I decided to “play it safe” and sold the gold stocks.
During the remainder of that week, gold had one down day to stop the record-tying run higher and then rose into May 2nd. The gold stocks rose enough into Friday 4/29/11 to hit/touch the resistance 92-96 index, but never actually generated the expected selling/hedging index signal because as gold topped on May 2nd, the gold stocks once again declined for another negative divergence and “just missed” the index signal.
And then the decline began in earnest. If you look at the chart of silver (SLV), you can see a run pattern of 1 Down, 2 Up (to a multi-year high), and 5 large daily declines. If you’ve been reading SKI for years, you knew that was a potential Death Run pattern that portends several years of declining prices. That rare run pattern decline must start from a multi-year high. It did. The last such run pattern occurred at the gold stock high in May 2006 and caused me to be bearish until the life run low run pattern during the crash of 2008. However, frankly, that Death Run pattern has only been validated over 3.5 decades using the gold stocks (USERX), so I cannot be adamant about several years of silver bearishness, but the recent behavior of the stocks is consistent with silver’s major bearish run pattern.
The gold stocks declined during the week of 5/02/11-5/06/11 into multiple index signals. The application of the SKI indices on the HUI index generated a 92-96 index sell signal, ending the HUI’s true SKI bull market from 6/02/2010. USERX’s master 221 index, that had bought one day after the low on 8/18/2009 was hit/touched, and it looked like an intermediate-term low was forming. SKI’s 35-39 index generated a new buy signal that executed on Tuesday 5/10/11 at USERX 17.85 and I bought. However, the strong decline on the day after the buy signal immediately generated that index’s sell signal and SKI was stopped out.
Since January 2011, the 321gold articles that I have been writing described that the gold stocks were in a “New Phase” whereby rises into index signals would be resistances and mark highs. This past week we had the opportunity to change that pattern, but it did not happen: The rise into the new 35-39 index buy signal simply marked another top and I had to sell again. And this time the SKI index lost 3.9% in 2 trading days.
During the remainder of last week, the gold stocks continued to decline. USERX has now fallen below its March 2011 low (where the prior buy signal had occurred) and appears to be poised for another decline this coming Monday (5/16/11) to make a new 2011 low below the January low of USERX 16.92 (where I bought for the first time in 2011).
On this past Friday (5/13/11) the gold stocks (as per USERX) declined to below ALL of the regular SKI indices for the first time since the crash of 2008. During 2009, 2010, and 2011, every time that the gold stocks declined to the lowest of those indices, it was an exact low (and that’s how/why I was able to buy the January 2011 low). This is quite ominous (bearish).
The gold stocks appear to be poised to test their long-term supports over the next month or longer. The long-term “supports” are the set of long-term SKI indices comparing the current price to prices from 218-222, 439-443, and 660-664 trading days earlier. This past week, USERX fell below one of its five 221 index back prices for each of the past three trading days. And that index’s back prices begin to plunge again on Monday (5/16/11). It looks like we are going… down.
And note the current run pattern in the gold stocks. It is 1 Down, 2 Up and 4 days down. One more day down on Monday will form that classic 1 Down, 2 Up and 5 Down run pattern. The current four days down have “only” averaged 1.25% per day. That’s not strong enough (yet) to form an historic type run pattern, but we’ll see if and how much USERX declines on Monday in order to judge the significance of this current run pattern.
So, for now, despite the oversold nature of the gold stocks and the apparently overly negative sentiment of analysts (that is usually a bullish sign), I have to expect a significant continuing decline into long-term support….
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.