Special SKI Report #71
Gold Stock Run Patterns

Jeffrey M. Kern, Ph.D.
Email: jeff@skigoldstocks.com
USERX | historicals
Written May 30, 2010
Published May 31, 2010

Current USERX price = 16.18, Up 2 cents since the last 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 5/09/10, I described, for the FOURTH consecutive report spanning 13 weeks, how a true SKI bull market opportunity had initiated, this time on 4/27/10. The prior three signals had each failed and generated small losses. I had then gone “out-on-a-limb” and included in the article title “EXACTLY NOW” because the gold stocks had retreated to the point of generating a new short-term index (16-20 index) buy signal. And if you don’t believe in cycles or these unique SKI indices, here’s another example. The 663 index (that compares the current price to prices from 660–664 trading days earlier) also had generated a simultaneous buy signal. The 663 index is the long-term equivalent of the 16-20 index: It also buys on declines and sells on rises. So the 16-20 index and the 660-664 index were both indicating that a rise should begin “Exactly Now”.

It’s always “nice” to get buy signals, but the problem is that once SKI generates a short-term index buy signal and/or a 663 index buy signal on a decline, a rise will produce sell signals. During true bull markets, the market can (not “will”) go through such resistance to the upside.

The expected immediate rise from USERX 16.16 on the day prior to the last SKI Report to 16.55 on Monday (5/10/10) was sufficient to generate the short-term index’s sell signal for the next day. Prices are supposed to rise into the sell signal and the gold stocks surged higher on Tuesday (5/11/10) to USERX 17.38. When such buy and sell signals occur next to each other (one day after another), that presents a particularly good likelihood that the 16-20 index resistance will be overcome and that the rise would continue. And the gold stocks rose again the next day (5/12/10).

However, the market also needed to overcome that long-term 660-664 index resistance. Prices had risen to hit that index’s back prices. Unfortunately for the bull market, that long-term resistance held once again and the gold stocks (as well as gold and the general stock market) began a fast and significant decline. The 663 index resistance has stopped all of the major rises during the past year. The market rose to 663 index resistance on 6/02/2009, marking that intermediate-term top. It then rose to that resistance on 12/01/2009. And so it rose again to that resistance index on 5/12/10, but this time SKI was on a potential true bull market signal, so the gold stocks had a decent chance of continuing to rise and go through that resistance. But that did not occur and a fast plunged ensued.

So, for the 4th time this year, the gold stocks had a real opportunity for a true bull market and then failed.

The decline involved a rather special run pattern (see the Introduction above regarding what a “run pattern” is). USERX went 3 days up into 5/12/10 and then declined for 6 consecutive days into new index signals. The 3 Up and 6 Down run pattern is often indicative of a low and that has been the closing low on 5/20/10.

USERX then rose for 5 consecutive days to form a 6 Down and 5 Up run pattern. Am I boring you (smile)? Such a run pattern has only occurred 7 times in the past 36 years. All 7 times, that run pattern has marked a high. The frequency is low, but this IS a “special” run pattern that has always been at least short-term bearish. And “special” run patterns have low frequencies. History does not “have to” repeat, but it usually does repeat.

Conclusion:

The run pattern therefore suggests that the gold stocks are at least at a short-term top (a top of some type) for this coming week. IF they decline for consecutive days, the run pattern may turn bullish again. And IF such a decline (should it occur) isn’t too severe, the 92-96 index will probably buy again under oversold conditions in another week for another rise (and another bull market opportunity), but there is nothing that SKI has that prevents a significant decline at this time. In conclusion, the short-term “call” is bearish and then in 1-1.5 weeks there is the very reasonable possibility of a strong rise IF this week’s probable decline isn’t too harsh.

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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