Current USERX price = 11.26, Up 97 cents (9.5%) 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 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.
The last gold stock SKI Report, written on Sunday 5/19/12, concluded that the gold stocks had already risen to index resistance, but since that resistance was rising for several weeks, I could not determine whether there would be another decline or a rise. The conclusions also stated, “If prices do rise for a few weeks, index resistances would be hit and major buy signals would be triggered on a several-week decline to a probable higher low. I’d love that”.
Since that Report, the gold stocks have thankfully surged higher, but the rise HAD to run into index sell signals. The HUI’s long-term 663 index (that compares the current price to prices from 660, 661, 662, 663, and 664 trading days earlier) generated its sell signal this past Wednesday (6/06/12) as the HUI rose over the prices from almost three years ago. That long-term index is contrarian in the same manner as the regular SKI System’s short-term 16-20 index. The 663 index had bought on 5/08/12 at HUI 402.44, so it sold at about a 9% gain. The important thing to note is that the HUI’s 663 index will generate another buy signal on a decline.
The rise also generated 16-20 index sell signals. The USERX 16-20 index executed its sell signal this past Wednesday (6/06/12) and the HUI’s 16-20 index sell signal came a day earlier. The important thing to note is that these indices are also likely (not certain yet) to generate regular SKI System buy signals on the next decline.
Isn’t it “interesting” that both the long-term system’s contrarian index and the regular system’s contrarian index generated sell signals almost simultaneously? That’s actually not particularly unusual and, in my biased mind, such occurrences continue to validate these indices.
In January and February of 2011, I posted two articles about a “New Phase in the Gold Stocks”, found here and here. These articles are always available in the 321gold archives. That basically meant that rises would be hitting index resistance signals as opposed to declines yielding index support signals. THE RISE OVER THE PAST FEW WEEKS IS LIKELY TO BE SETTING UP A CHANGE: Declines will probably be yielding SKI index buy signals. If the recent rise is the beginning of this major shift to bullishness, the subjective Elliott Wave theory would expect that the rise from 5/16/12 contain 5 waves into the high (up, down, up, down, and up). I use run patterns and index signals in an effort to more objectively “count/label” such waves. From the 5/16/12 low, the run patterns provided a short-term high on 5/25/12, a short-term low on 5/31/12, and a short-term high on this past Wednesday (6/06/12) along with the index signals. Therefore, the expectation is for a little more down and then one additional brief rise to complete the 5-wave sequence.
The obvious (too obvious?) chart resistance is also here.
Solid multiple index resistance signals executed on last week’s rise. I’ve got to expect some more brief downward movement, but if the structure of the gold stock market is changing back to “SKI index buy signals on declines” (from “SKI index resistances on rises” that has been in force since January 2011), a subsequent brief rise should also occur. Three weeks ago I concluded, “If prices do rise for a few weeks, index resistances would be hit and major buy signals would be triggered on a several-week decline to a probable higher low”. We’ve gotten the rise and now are close to setting up for the possible decline that’s likely to change the structure of the market and generate multiple (and typically powerful) index buy signals in July. Although analysts keep writing how the September 2011, December 2011, and May 2012 lows in gold and silver need to hold, the mining stocks have finally been showing some strength relative to bullion, and I might love to see bullion drop to new lows while the gold stocks drop into multiple buy signals at a higher low. That’s not “required”, but it might also complete silver’s decline from its April 2011 apparent Death Run top. I may be delusional (smile), but the situation IS almost set-up for a bullish SKI index structure and multiple buy signals (short-term, intermediate-term, and longer-term) on a decline.
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.