Current USERX price = 15.51, Down $2.02 (11.5%) since the last report 4 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 6/20/10, I described the technical patterns based upon the SKI indices and the traditional technical interpretations of an ascending triangle in gold bullion and a symmetrical triangle in the gold stocks. That sounds rather “dry”. The tone of that Update was generally bullish with the 2 caveats: (1) That a Wave E down [the last wave] was missing in the gold bullion triangle, and (2) That the SKI short-term indices had given short-term index sell signals just before the day of that Report. So I thought that for this Report, I would pick up from that date and describe how the indices and the triangles ended up “playing out” into the present. I’m doing a good job of timing these recent Reports (sarcasm) because the last one was written directly at the high and now the gold stocks (and gold) have reached another marked critical point as of this past Friday (7/16/10) after having fallen 11.5% from the high on 6/18/10.
The gold bullion triangle was described as follows: “The gold bullion correction (by looking at GLD) was a triangle, but it was an Ascending Triangle with a flat top and rising bottoms. The Ascending Triangle wasn’t “just right” because it appears to be missing one wave. The decline from the 5/12/10 high to the 16-20 and 92-96 index signals was Wave A down at GLD 114.51. The rise into the 92-96 index buy signal on 6/08/10 was a Wave B high at 122.45. The key reversal down day to touch the 35-39 index on 6/14/10 was a Wave C low at 118.83, and the rise into the 16-20 index sell signal on 6/17/10 looked to be a Wave D high. It appeared that we needed a 1-2 day decline to complete the triangle via an E Wave down. Instead, prices gapped higher on Friday (6/18/10) and that was strange. It leads to the possibility that prices will have an immediate short-term decline back into the triangle, hitting the up-trend support line connecting the two lows to form the missing Wave E at about GLD 121, but that may be wishful thinking from someone who wants to buy more (click here)”.
So what happened? Gold fell the next day (6/21/10) with GLD dropping down to the bottom of that triangle (GLD = 120.36), up the next day, and then down a little to test that triangle support again, so I did some buying. Then it rose back to the top of the triangle on Friday (6/25/10) and it all looked okay for the bullish case. But then, on Monday (6/28/10), gold immediately declined about $18 and fell below the bottom of the triangle. The market spent the next two days rising a little, but could only rise back up to the bottom of the triangle, and I had to sell what I had purchased the prior week. Then gold dropped $40 in a day. So that ascending triangle failed.
GLD has now fallen, as of this past Friday (7/16/10) to its next exact support line of a larger ascending triangle. This triangle’s lower rising support line connects the lows from February and March 2010. Friday (7/16/10) coincided with a new SKI index buy signal (see below).
The symmetrical triangle in the gold stocks was described in the last Report as: “USERX declined for 6 consecutive days from the 5/12/10 high into the 16-20 index buy signal and the 92-96 index sell signal to mark the Wave A low on 5/20/10. The 5 consecutive daily rises that followed were supposed to mark a high and actually were Wave B up. Prices then declined to the 35-39 index sell signal on 6/04/10 that was the Wave C low. Prices then rose into the 92-96 index buy signal for a Wave D high on 6/08/10. So all of the run pattern and index signal concerns and interpretations that SKI provided now make sense. The final E Wave decline ended on 6/14/10 via a touch of the 35-39 index and that “key reversal down” day. If you draw a chart line connecting the 5/12/10 high and the 6/08/10 high for the downtrend top of the triangle, and then draw a line connecting the lows on 5/21/10 and 6/04/10, you can see that the rise on 6/15/10 broke out over the top of the symmetrical ABCDE classic triangle for a breakout (click here)”. Prices then rose back to the December 2009 high on 6/18/10.
But again, immediately after that last Report, the gold stocks started to decline. The gold stock indices (HUI, XAU, GDX, USERX), in synchrony with gold, fell back the exact support line of a larger triangle that may be developing. That rising support line connects the February and May 2010 lows. The gold stocks had a closing low on 7/06/10 via 6 consecutive daily declines and an intra-day low the following day, both marked by SKI index signals. And importantly, the decline also fell exactly to the rising support line connecting the February and May 2010 lows. Prices rose for a few days and then began declining again.
That brings us to this past Friday (7/16/10) when gold, the gold stocks, and the general stock market experienced fairly strong declines. As per the above paragraphs, GLD fell to its exact support line connecting the February and March 2010 lows. And it that support has not yet been broken. However, the gold stocks closed slightly below their support line (connecting the February and May 2010 lows). And SKI generated a new 35-39 index buy signal on Thursday (7/15/10) that was officially executed on Friday’s close (USERX = 15.51). Index signals are executed the day after they are generated, always officially at the close of that next market day. Most interestingly, Friday’s 3% decline in the gold stocks caused USERX to also hit/touch the 92-96 index support. On Friday, the USERX prices from 96, 95, 94, 93, and 92 trading days earlier were 15.01, 15.30, 15.52, 15.29, and 15.48. Note how, as is not unusual, prices fell exactly to the next index support level by a penny.
This past Friday’s (7/16/10) decline brought the gold stocks down below their rising support line connecting the February and May 2010 lows (that’s bearish if there isn’t an immediate recovery), but gold (GLD) held exactly at its support (see above). SKI had a new buy signal on Friday and USERX hit/touched the 92-96 index support by one penny. So Friday could be a low, with a rise back to the 2010 highs coming over the next 2+ weeks to form another top of a larger triangle marked by a 16-20 index sell signal. But any further decline of about 2% this coming week will quickly generate both the 35-39 index and the 92-96 index sell signals. SKI would remain long-term bullish since 9/11/2008 and 8/18/2009, but the intermediate-term is likely to be “problematical” (that’s a nice way to say “bearish”) if that happens. Therefore, this past Friday was another marked “critical point” that seems to occur at least once a month in this highly choppy and whipsawing gold stock sector. Although I will not predict what will occur during the first few days of this coming week, according to my indices, the bullish intermediate-term case needs rising prices this coming week. A concern is that the general stock market is short-term overbought (and having risen into resistance last Tuesday, Wednesday, and Thursday), so “we” might be in trouble.
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.