Current USERX price = 16.13, Down $1.21 (7%) 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 6/05/11, I described how the gold stocks remained below all of the regular SKI indices in a bearish alignment, that the run pattern was 1 Down 2 Up and 3 Down with the expectation for a continuing decline to form another classic run pattern, and that the next downside target was the long-term 221 index.
All of those expectations were fulfilled. The gold stocks declined on 6/06/11, 6/07/11, and 6/08/11 to form another classic 1 Down, 2 Up, and 6 Down run pattern. That run down started at a high and only declined an average of 1.3% per day during the 6 days of decline (i.e., it was a “weak” run down that wasn’t consistent with a capitulation low). Therefore, the historical probability was that the run pattern marked a high but did not mark a low. Prices continued to decline into 6/16/11 at USERX 16.11. If you go back 218-222 trading days, the 221 index’s prices were 15.71, 15.75, 15.92, 16.33, and 16.28. Therefore, the gold stocks had declined to hit/touch that long-term 221 index support.
The gold stocks remained rather flat on the following 2 trading days (6/17/11 and 6/20/11) and continued to hit/touch the 221 index support. That index had generated its long-term buy signal on the day of a low on 8/16/2009 at USERX 12.15 and had not sold since then, but now it was within one day of generating its sell signal. The gold stocks needed to rise the next day, with USERX rising to over 16.30, to avoid generating that index’s sell signal. AND THE GOLD STOCKS DID RISE ON 6/21/11 TO AVOID THE 221 INDEX SIGNAL! That’s bullish behavior.
The strong rise on 6/21/11 was followed by another rise on the next day to form yet another 1 Down (when USERX declined by 1 penny on 6/20/11) and 2 Up run pattern. But this run pattern was occurring at a low (as opposed to at a high). If USERX had risen 5% or more during that 2-day rise, the run pattern would have meant (historically) that the intermediate-term low had formed, but late-day selling on 6/22/11 held the gold stocks down to only a 3.5% rise over those two days. Therefore, that was not a clear sign of the intermediate-term low. Moreover, gold bullion had risen for 7 consecutive days as of 6/22/11 (the repeated all-time record is 8 consecutive daily rises), so gold was overdue for a decline and plunged $52.40 during the two days after those 7 consecutive daily rises.
That brings us to up to this weekend. The gold stocks actually held up very well during gold’s 2-day decline last week, refusing to go below the 6/16/11 low when USERX hit/touched the 221 index. Last week was the first week in months that gold declined while the gold stocks remained flat (a positive divergence). And Friday’s decline back down to USERX 16.13 once again hit/touched that 221 index without generating a sell signal. As I’m writing this on Monday morning (6/27/11), the gold stocks are rather flat, but no matter what happens into today’s close, that 221 index cannot generate its sell signal today. But USERX will need to rise within the next 2 trading days to once again avoid that index signal.
The gold stocks are finally showing some positive (bullish) signs after performing so miserably relative to gold bullion over the past few months. They’ve “held up” while gold declined last week. They’ve fallen into 221 index support, but have avoided (so far) selling that important long-term index. The run pattern into this past weekend was yet another potentially classic 1 Down, 2 Up, and long run down. The run down into this weekend was only 2 days in length and I do not know if USERX will close higher or lower today. But a strong run down here could form the intermediate-term low. The other (and preferred) way of forming the corrective low from the December 2010 high in the gold stocks is for prices to rise over the next 1.5 weeks into an index sell signal to mark another high and then for the gold stocks plus gold to plunge into a true SKI buy signal. Yes, that would sell the 221 index, but it would be a true SKI buy and a subsequent rise would simply generate another multi-year 221 index buy signal.
Therefore, as of today, SKI remains in cash but the bullish probabilities are increasing for an approaching important low in the gold stocks.
Best Wishes, Jeff
P.S. I’m sorry for the one-day delay in writing this Update. I was traveling for my eldest son’s engagement party and “final” graduation from residency in Dallas. Those were quite joyous occasions! Now let’s form the gold stock low over the next 1 to 3 weeks for some monetary pleasure….
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.