Current USERX price = 18.07, Up $1.94 (12%) 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 in the morning of 6/27/11, I described the first positive developments for the gold stocks in months: (1) The long-term 221 index support had been hit/touched but that 2-year old buy signal had avoided selling and (2) The gold stocks were actually showing positive divergences with gold bullion.
The gold stocks declined on that Monday (6/27/11) to hit/touch the 221 index support again, but then rose for 2 days. The rise wasn’t quite strong enough to avoid the 221 index sell signal that executed on 7/01/11 as gold declined to $1482.30. That index sell signal can (not “will”) mark a low, but if it was going to mark a low, it should quickly re-buy. And since only a tiny rise was needed to immediately generate a new buy signal, the 221 index immediately generated its re-buy on the next trading day (7/05/11). Therefore, the long-term SKI system returned to bullishness.
Three weeks ago, the gold stocks were below all of the regular SKI indices (below the 16-20, 35-39, and 92-96 indices). The rise during the first week of July was strong enough to reach the first level of index resistance by rising over the prices from 16-20 trading days earlier. And as often occurs when the gold stocks rebound from oversold conditions, the rise almost simultaneously took prices above the 35-39 index for an intermediate-term buy signal. That index signal pattern (a 16-20 index resistance signal on 7/08/11 followed by a 35-39 index buy signal on the next trading day [7/11/11]) isn’t a particularly bullish pattern: SKI buys the 35-39 index buy signal on 7/11/11 at USERX 17.08, but often gets stopped out via a 35-39 index sell signal if there is a brief decline for a week or two. Alternatively, the gold stocks continue to rise from that 35-39 index buy signal but then get stopped when prices rise up to the 92-96 index. Such a rise typically lasts 17-21 trading days from the 7/11/11 35-39 index buy signal. In the current situation, it looks like the rise would hit the 92-96 index resistance in about 14 trading days from the 7/11/11 buy signal because the 92-96 index’s back prices will be declining to the USERX 17.17-18.00 area in 2 weeks from today.
Although there isn’t an important new run pattern in the gold stocks, gold bullion (i.e., the COMEX cash gold closing price) has now risen for 9 consecutive days. That’s a new record! Since the run higher started from a low, the top of the run does not have to mark a high, but gold is obviously historically due for at least a brief decline to stop this run up.
Since the positive divergences reported 3 weeks ago, the gold stocks have risen strongly along with gold bullion’s rise to new all-time highs. The long-term SKI system returned to long-term bullishness and that 221 index buy signal could be signaling that we’ve recently completed a major low in the gold stocks: The last such buy signal on 8/17/09 lasted almost two years when it bought one day after a major low and the new buy signal may perform similarly. If you look back at USERX’s prices from 218-222 trading days ago, you’ll see how the 221 index’s back prices just keep rising in a gradual manner, so the gold stocks need to continue to rise (week-after-week and month-after-month) to keep the long-term system bullish.
The regular SKI system (shorter-term) went onto an intermediate-term 35-39 index buy signal on 7/11/11. Therefore, the gold stocks still aren’t purely bullish in the manner of 2001-2002 or 2005-2006 when SKI was on true bull market 92-96 index buy signals and the gold stocks rose their typical 100-300% in 6-18 months.
During the next week, a decline of about 4% would likely sell the 35-39 index and set up a potential Double Buy signal in early August. Unlike gold bullion that doesn’t have any observable overhead resistance (since it’s at a new all-time high!), the gold stocks will hit resistance in the next couple of weeks IF they rise into the prices from 92-96 trading days earlier (the 92-96 index). Therefore, the gold stocks still have some work to do in order to morph into a true SKI 92-96 index bull market, but that’s possible over the next month. The major concern for the bullish case continues to be the apparent Death Run top in silver (SLV) that I reported on in the May 14th Report (Special Report #87). Either such a death run pattern is invalid for silver (it’s only been historically validated for USERX) or the 221 index will sell and stop-out the long-term SKI system.
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.