Special SKI Report #55
Nailing the Gold Stock High

Jeffrey M. Kern, Ph.D.
Email: jeff@skigoldstocks.com
USERX | historicals
Written Jun 14, 2009
Published Jun 15, 2009

Current USERX price = 13.12, Down 1% 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 5/24/09, titled “Strange Gold Stock Behavior”, I described how the gold stocks had been rising in a strange manner that was not SKI-correct and that I would have to rely upon long-term cycles/indices to call the next top because SKI can miss rises (ala the one from the XXed Out SKI buy signal on 4/17/09) but the gold stocks always come back down the regular SKI indices unless it’s a true SKI bull market. Such a decline was needed because SKI was not on a true bull market buy signal despite turning back to multi-year bullishness in the Fall of 2008.

The long-term indices marked the top by generating signals on the day of the closing high (6/02/09) and sold on 6/04/09. It was one of those “amazing” weeks because the market had to perform in a rather precise/exact manner in order for indices that are based upon prices from 2 and 3 years ago (occurring at the exact lows from 2 and 3 years ago!) to mark a current market top.

So I decided to reprint that Special Update sent to subscribers on 6/03/09 to sell and/or short on the close of 6/04/09, as follows (with a few XXXXs to preserve some information for subscribers):

“SKI Intra-Week SELL Update 6/03/09 4 PM PST USERX = 13.63, Down 78 cents (5.4%)

Intermediate-term high probability Double Sell pattern. Sell (unless you are holding multi-year long via the life run low). I don't have an objective stop on short positions or a way to buy here.

I did not expect to send an Intra-Week Update to everyone because I thought that the topping pattern would probably continue until the weekend Update, but the past 3 days have been rather "SKI-perfect". Prices rose on Monday and Tuesday over USERX 14.38 (14.41 yesterday) and generated a tied 663 index sell signal and a 442 index buy signal yesterday for execution today. Those tied signals were supposed to mark an intermediate-term high (finally; although gold bullion was still lower than the SKI top occurring on 2/20/09) and today's decline immediately generated the 442 index sell signal for tomorrow (6/04/09). THEREFORE, WE HAVE THE DOUBLE SELL PATTERN WITH THOSE LONG-TERM INDICES. Prices are supposed to decline some XXXX% back down to the regular SKI indices and probably the 92-96 index at below USERX XXXX over the next XXXX weeks. I do not know if prices will rise or fall tomorrow, but the index pattern says to sell tomorrow. Traders were alerted yesterday and that message is reprinted at the bottom of this brief Update. The 663 index buy signal that occurs on declines should be (will be) generated on Friday for execution on Monday, but that signal is XXed Out. This looks classic/perfect and the index execution missed the high by one day (as it generated on the exact high yesterday).

The "good" news is that the gold stocks and the general stock market did NOT rise today for 5 days up. Their runs up stopped at 4 days up. Five days up would have been a major sell pattern in the general stock market and a 96-100% probability run pattern sell signal in the gold stocks (because USERX did a "mysterious" rise on Monday, 6/01/09, when it rose 5 pennies despite most gold stocks closing 1-2.5% lower). Therefore, the failure to go 5 days up suggests that the ensuing decline will still be in the context of a long-term rise.

Today's plunge stopped at the support line from the 4/17/09 low that connects the subsequent short-term lows. So yes, the gold stocks plunged down to support in one day and can bounce up tomorrow and/or Friday. But the index Double Sell pattern predicts that this support will fail. The caveat (there's always some uncertainty) would be that the XXing Out of the 663 buy signal on Monday (6/08/09) will be wrong, just as the 4/17/09 XXing Out of that 16-20 index buy signal was wrong. If that 663 XXed Out buy signal is a valid buy signal, prices will simply skyrocket after next Monday because the 663 and 442 index back prices skyrocket (and SKI plus Jeff will truly be in trouble). But that is not supposed to occur; This sell pattern looks to be exactly right and is occurring when the gold stocks are short-term and intermediate-term overbought.

I recommend that you sell or hedge or short before the end of this week (or remain in cash with SKI and I unless you have decided to remain long-term long). SKI and I have been in cash during the strong rise from 4/17/09 but I am prone to go short (finally) if prices have an up day during the remainder of this week. I will, of-course, discuss the possible bottoming/buy scenarios in the weekend Update because a true bull market buy signal is anticipated. But the decline back down to the 92-96 index is likely over the following XXXX weeks.” End of Reprint

Conclusion:

After being multi-year bearish on the gold stocks since the May 2006 “death run high”, the “life run low” in the Fall of 2008 predicted multi-year gold stock bullishness. Nonetheless, SKI has been strangely calling/marking highs on 2/20/09 and 3/23/09, a behavior that is not consistent with bullishness: During truly bullish periods SKI calls lows as opposed to highs. The 2/20/09 high marked by the 92-96 index has not been surpassed by gold bullion, but the gold stocks strangely rose to a higher high in June 2009 and SKI once again marked that high by selling/shorting on its long-term indices on 6/08/09. The decline from those long-term signals should be meaningful and should continue until the master 92-96 index generates its sell signal to open the SKI Path for a true bull market.

The gold stocks need at least another 12.5% decline from the current price (USERX= 13.12) to set the stage for a true bull market in the precious metals and the gold stocks (where prices rise and rise to establish higher levels). Such a set-up will be possible this summer IF/WHEN the current decline continues, as is expected rather immediately.

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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