Current USERX price = 17.34, Up 32 cents (2%) 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 5/15/11, titled “Historic Run Patterns and Bearishness”, I described the apparent Death Run pattern in silver, the fact that the gold stocks were below all of the regular SKI indices for the first time in years, the expectation that USERX would decline to new lows for 2011, and the ongoing run pattern of 1 Down, 2 Up and 4 days down as of 5/15/11.
Again, one of the most important run patterns is when the gold stocks (USERX) decline for 1 day, rise for 2 days, and then decline for 5 or more consecutive days. The significance of that run pattern depends (historically) upon where the run down begins and the size of the 5+ day decline. In SLV, the 2 days up occurred at a multi-year high and the 5 days down were very large. Since SLV has not been in existence for enough years, this run pattern has not been cross-validated for SLV, but if it had occurred in USERX, it would be termed a “death Run” and the prediction would be a multi-year decline of at least 60%.
The USERX run pattern at the time of the last 321gold report was 1 Down, 2 Up, and 4 Down. The 4 days down were “weak”, averaging 1% per day down. Therefore, it wouldn’t have had any chance of being a Death Run unless prices had collapsed during the following days.
The day after I wrote that last Report, USERX declined again for 5 days down and closed at 16.90, the new 2011 low that was expected. But the run down continued to be “weak”. And when the gold stocks rose the next day (5/17/11), the classic run pattern had been completed, but it wasn’t a Death Run. The importance of this classic run pattern, again, depends upon the strength of the run down. Such weak runs down “can” (not “will”) mark short-term lows that typically have yielded rises of 1-2 weeks if they are marking a low. Also note that on 5/17/11, gold bullion closed lower and the gold stocks closed higher. That’s a “positive divergence” that was consistent with some type of low.
If you’ve been reading these SKI Reports for at least the last few months, you’ll hopefully recall that I kept looking for and expecting a rise up to the 92-96 index as the signal that would mark the next meaningful high. The indices did mark the March high by generating signals their on 3/03/11 and 3/08/11 and then generating a valid buy signal on 3/17/11. But on the next rise, the 92-96 index came within one day of generating its signal on 4/08/11. That has been the 2011 high in the gold stocks, but the dagnapit index missed generating tis actual signal by one day. And then on 4/29/11, the 92-96 index was touched again but did not generate its signal as “everything” then began a hard fall on the next trading day. So the dagnapit index just missed marking the top again. The point is that the market has repeatedly just missed generating that important index signal several times at recent meaningful highs (since doing it “properly” at the March 2011 high).
The following may seem like tedium, but for the SKI indices it’s important and you may be impressed by the precision. Note the continuing pattern. Last Monday (5/31/11), USERX rose to 17.88. The prices from 92, 93, 94, 95, and 96 trading days earlier (the 92-96 index) were 18.71, 18.71, 18.21, 17.89, and 17.96. Note how USERX missed hitting the 92-96 index by one-penny. The next day (6/01/11), the lowest 92-96 index back price dropped to 17.80 and USERX declined to 17.61, staying below that resistance index. On 6/02/11, the 92-96 index’s lowest back price declined to 17.44 and USERX declined to 17.39. And finally, on Friday (6/03/11), the 92-96 index’s lowest back price fell to 17.35, so I had to expect that USERX would close below 17.35. It did it again by one-penny at 17.34.
The 92-96 index’s new back price for tomorrow (Monday, 6/06/11) is 17.19 and after that the index hits the January 2011 low of USERX 16.92. What do you think the short-term expectation is? A continuing decline to below the index maintains the multi-month pattern whereby rises in the gold stocks are rejected/resisted by the 92-96 index. But note that such patterns can change and that a change in the pattern this coming week would likely generate a buyable 92-96 index signal with a few days of small rises. I doubt that will happen because the normal 1-2 week rise from the run pattern low on 5/16/11 expired a week ago.
BUT PLEASE, NOTE AGAIN THE CURRENT RUN PATTERN. USERX went 1 Down and 2 Up into 5/31/11, the top-to-date since the 5/16/11 run pattern low. USERX has now declined for 3 consecutive days into Friday (6/03/11). The decline has again been “weak” so far, averaging just 1% per day to the downside. Given the 92-96 index data above, it appears to be likely that USERX will continue down for 2-3 more consecutive days to another new 2011 low and another instance of the 1 Down, 2 Up and 5 or more Down “classic” run pattern.
I can only “hope” that this run down stops or does not change into a “strong” run down via large daily declines early this coming week. We’ve had a potential Death Run in SLV, the repeated resistance of the 92-96 index (actually since my late January 2011 Report when I described “A New Phase in the Gold Stocks” whereby rises into 92-96 index signals would be resistance), and now the beginning of what could be an important run pattern in the gold stocks. The “fly in the bearish ointment” continues to be gold bullion that could easily run to new all-time highs and has been rather “out-of-synchrony” with the gold stocks. And maintaining flexibility is important: The bearish index pattern could change via a buyable 92-96 index signal with a few days of small rises during this coming week. And a few more days down to complete another weak classic run down could form another short-term low. If prices do continue down in a significant manner, the next support is the 221 index that turned bullish on 8/17/2009 but is now beginning to rise from last summer’s low of USERX15.28.
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.