Current USERX price = 16.31, Down 3.5% 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.
In the last gold stock SKI Report on 5/30/08, I urged continued caution in buying the gold stocks and the precious metals, but that a major SKI buy signal was possible within a week. The gold stocks didn't come close to generating that buy signal as prices continued to decline. The decline brought prices under the prices from 16-20 trading days earlier, thereby generating a 16-20 index short-term oversold buy signal that was executed on 6/11/08 at USERX 16.06. Prices have risen a little since the actual low that occurred one day after that buy signal (It's quite common for the index signal to miss the exact low or high by one trading day). Gold bullion has performed nicely since that buy signal by rising about $30, but the broad basket of gold stocks have performed in a paltry manner by rising only 3% since the index bought. Their weak rise may be partly due to the fact that the 16-20 index buy signal was too dangerous to execute based upon the rules governing the SKI system. Historically, prices have fallen through that type of buy approximately 70% of the time. Therefore, I could not take the chance of buying and it is still possible that another wave down, falling through that buy signal, is about to begin this coming week.
The important SKI index that is coming into play at this time is the intermediate-term 35-39 index. This index compares today's price to the prices from 35, 36, 37, 38, and 39 trading days ago. If you look back that amount of time, you will see that it corresponds to the lows put in at the end of April 2008. Sharefin's excellent charting site includes a rough graphical display of the SKI indices that he allows free access to here. The red, green, and blue sets of lines correspond to the short-term 16-20 index, the intermediate-term 35-39 index, and the master 92-96 index, respectively. Perhaps you can see how current prices (the black dots) fell below the red line (the 16-20 index) seven trading days ago to generate the short-term index's buy signal and have now rebounded up to the green lines representing the 35-39 index's back prices. We are within a day or two of POSSIBLY generating that index's buy signal, but that index has been acting as resistance so far.
Last week's price behavior was quite interesting based upon the 35-39 index. I wrote this description of last week's price movement to subscribers:
Monday (6/16/08): Prices gapped higher in the morning to form a classically bullish "island reversal" and the gold stocks were flying. I wrote to traders that USERX was up at 16.35, hitting the 35-39 index's lowest back price (resistance) and I intellectually downplayed the bullish significance of that "island reversal". And then the gold stocks performed according SKI, sold off, and USERX closed up a paltry 9 pennies at 15.99 while gold closed $13 higher!
Tuesday (6/17/08): Prices rose again in the morning, this time rising to about USERX 16.25. That 16.25 price was the new low price in the 35-39 index. Then the gold stocks sold off again, but USERX still rose an unexpectedly large 1% to 16.13 while gold only rose $1. The 35-39 index was likely to be hit/touched/broken tomorrow because a USERX 15.54 back price (the late April 2008 low) was coming into the index.
Wednesday (6/18/08): Prices rose again as USERX closed at 16.29, touching the 35-39 index on a closing basis while gold rose another $6.60. That was four consecutive Up closes in USERX and gold. I wrote how tomorrow should provide important information because the index had now been hit.
Thursday (6/19/08): Prices exploded in the morning and I really felt sick being in cash. Gold was up $16 and USERX was flying over all of the index's five back prices. I wrote to traders that intellectually this was a day to initiate a short position if so desired, but Jeff stayed in cash. Then the gold stocks sold off again and many gold stock indices closed down for the day. "Surprisingly" (not to me), USERX eked out a 4-penny rise for its fifth consecutive daily rise! Gold also closed higher by $10 for its fifth daily rise. This needed to be the end of the run up, but this was most anxiety-provoking.
Friday (6/20/08): Prices rose again in the morning and I was beside myself, but then the selling started again. The HUI closed up 1.5% and I had USERX called up 1% at the close, but somehow, those SKI or market gods provided a "surprising" (not to me) decline of 2 pennies in USERX (and almost all broad gold mutual funds) to stop the run up!
The gold stocks also generated a rather rare and important run pattern over the past two weeks. See the definition of a "run pattern" at the top of this Special Report. We have a rather low frequency but very high probability run pattern at 4 consecutive days down into the low on 6/12/08 followed by 5 consecutive days up (a 4 Down and 5 Up run) into Thursday (6/19/08). I thank the market and SKI gods for the little down close on Friday to complete that run pattern. Simply stated, EVERY (that 100%) run of 4 Down and 5 or more Up has marked either a meaningful high AND/OR a meaningful low (12 times in the past 34 years; 7 lows, 3 highs, and 2 lows AND highs). They have marked both a low AND a high when the run up was powerful (for example, one was 22% in 5 days). Obviously, the current run up was not powerful since it only involved a 3% rise over 5 treading days. In fact, this was the weakest such run ever seen at .6% per day.
SKI is on the verge an executable buy signal this coming week. But until it happens, it hasn't happened! (Now that's a great statement; smile). Such a buy signal wouldn't be forecasting some great rise because it doesn't involve the most powerful index, the master 92-96 index. The probabilities favor that the buy would make a profit (75% probability; not extremely high) but the buy should get sold out within one month and it could happen much faster than that. The first SKI buy this year was an XXed Out 92-96 index buy signal on 2/13/08, followed the next day by a 35-39 index buy. That was supposed to be a most powerful type of index buy because both indices were buying together and the master 92-96 index was leading. Gold bullion rose $100+ and USERX rose about 14% over 5 weeks. Even that rise wasn't as powerful as would normally be expected. The second SKI buy was a 92-96 index buy (on 5/12/08), without a 35-39 index buy. Since only one index was buying, it was supposed to be less powerful, but still pretty good since it was the master 92-96 index that bought. Gold bullion rose about $40 and USERX rose about 6% over just 7 trading days until it was time to sell (described in the last 321gold Special Report). Again, the gold stocks under-performed and the rise wasn't as strong as expected.
We'll see if we get this next buy this coming week. If it buys, the 35-39 index back prices will be rising rapidly. That means that the stop on such a 35-39 index buy signal, a 35-39 index sell signal, will be rising each day as the back prices rise up into the high on 5/21/08 at USERX 17.69. If the rise occurs but then fails to stay above those rising back prices, it'll be time to sell and consider another short position. BUT REMEMBER, AS OF TODAY, THE INDEX HAS NOT EVEN BOUGHT YET and if it does buy, it has that 25% chance of being stopped out within a couple of days at a small loss.
Best wishes, Jeff
P.S. "All" I ask for is for another good old SKI bull market master 92-96 index buy signal like in 2005 so that I can buy, hold for many months, and make a lot of money!
If you are interested in following and learning more about the SKI indices, I'll write another Report for 321gold 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. 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.