Current USERX price = 12.49, Down 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 written on Sunday 6/15/09, titled “Nailing the Gold Stock High”, I described how long-term SKI indices (comparing current prices to prices from two and three years ago, actually 439-443 and 660-664 trading days earlier) had marked the top in the gold stocks by generating signals on the day of the closing high (6/02/09) and selling on 6/04/09. Prices dropped another 4% the day after I wrote that article, but since then, the gold stocks have stabilized and have actually gone nowhere over the past three weeks. I had been hoping for a continuing decline that was needed to set up a true SKI bull market before the end of this summer, but prices simply went sideways and then had a 7% one-day plunge on 6/22/09 before stabilizing and recovering.
The short-term SKI indices actually went to a buy signal on 6/18-6/19/09 and sat through that 6/22/09 one-day plunge, but at that time I used my human judgment to make the recommendation that we avoid buying with the mechanical system. It was rather nice to have avoided that one day of pain (it’s not unusual for the indices to miss the low or a high by a day) but the fact was that the short-term indices had generated buy signals at USERX 12.39 and 12.65. Those buy signals are essentially sitting at break-even as of this weekend.
If those 90% probability buy signals are wrong and the gold stocks decline this coming week, those index buy signals will get stopped out by a higher-order index sell signal (the 35-39 index sell). But if those buy signals are correct, the gold stocks are approaching another critical point over the next 7-10 trading days.
The volatile stocks of gold and silver mining companies often reach critical points every month or two, so another critical point isn’t unusual. But it’s these critical points that usually mark meaningful points (10-20% moves) where the trend changes ala 6/02/09.
The two regular indices that are involved in this next probable critical point are the short-term 16-20 index and the intermediate-term 35-39 index. It was the short-term indices that generated buy signals two weeks ago whereas the 35-39 index has been on a buy signal since 4/27/09 at USERX 11.01. The 16-20 index is a “contrary indicator”: As prices rise over its back price from 16-20 trading days earlier, a sell signal is generated. Here are its back prices for this coming week:
As you see, if prices rise a few percent over the next week, the 16-20 index will be moving towards a sell signal that would occur the following week.
The 35-39 index gives buy signals when prices rise above the prices from 35-39 trading days earlier and sells if prices decline below those back prices. Again, the 35-39 index has been on a buy signal since 4/27/09 at USERX 11.01. Here are its back prices for this coming week:
You should be able to see how the 35-39 index’s back prices will be reaching current price levels towards the end of this coming week. And then those back prices continue higher due to the rise during the month of May.
The gold and silver stocks (as well as the metals themselves) are likely to be reaching another critical point over the next two weeks (or slightly sooner than that). If prices don’t stop SKI out for a loss this week, PRICES WILL NEED TO RISE TO NEW HIGHS FOR THE YEAR TO AVOID ANOTHER BEARISH DOUBLE SELL INDEX PATTERN. This Double Sell pattern would be following the long-term indices’ Double Sell pattern in early June. It would be most bearish, but we’ll see if a rise to new 2009 highs avoids such bearishness. The long-term indices’ Double Sell suggests that it won’t be avoided.
I’ve been writing this next paragraph for much of this year. 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 6/04/09.
If the gold stocks can hold up this coming week subsequent to the recent index buy signals, we are then going to see if the regular SKI indices generate a Double Sell for the precious metals complex or whether the gold stocks rise to new highs for the year. It’s not “me”, it’s the mechanical mathematical indices…
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.