Current USERX price = 16.55, Down $1.51 (8%) 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 7/17/11, I described how the rise from the June 2011 low had hit the first resistance indices a week earlier and that a continued rise into the 92-96 index should stop the rise. As importantly, the master long-term SKI system 218-222 index was on a buy signal and needed rather continuous rising prices for weeks and months in order to maintain that bullish status.
The gold stocks rose during the week following that last report and began to rise over the prices from 92-96 trading days earlier. The 92-96 index calculated on the HUI gold stock index (as opposed to the USERX mutual fund) actually executed its 92-96 index signal on 7/19/11, one day after the recent high-to-date on 7/18/11. We’ve been applying the SKI indices to the HUI for over a year now and its signals have been useful. The USERX 92-96 index signal delayed until some time after the exact high, executing its signal on 7/28/11.
This type of 92-96 index signal has always (100%) yielded a decline since 1974. The vast majority of instances have yielded a rather immediate decline to take the gold stocks back below the 92-96 index within two weeks from the index signal. In two instances, the market went sideways for 2 months and then declined back below the 92-96 index. In all cases (a large number of occurrences), the market did decline from the time prices rose over the 92-96 index to the time that prices went under the 92-96 index. Therefore, I always recommend selling when that index signal occurs.
USERX was at 17.62 on the day that the gold stocks rose over the 92-96 index and the index generated its next signal on 8/03/11 (last Wednesday). On 8/03/11, USERX was still above 17.62 (at 17.98). Was this going to be the first time that the index would not yield a decline? No, the plunge began in earnest on the next day, the day that the index marked (this past Thursday, 8/04/11) as USERX plunged $1.04 to close below 17.62 (at 16.94).
When USERX fell below the 92-96 index last Wednesday, that stopped out the regular mechanical SKI system. The long-term SKI system’s master 221 index executed its sell signal on 8/02/11 at USERX 17.91 when the gold stocks failed to keep rising over the prices from 218-222 trading days earlier.
The 92-96 index stopped the rise in the gold stocks as it always has since 1974. It was rather ominous early last week when the master long-term 221 index sold on 8/02/11 and the master regular 92-96 index generated its sell signal on 8/03/11. That prompted a special intra-week email to subscribers.
The gold stocks will reach some short-term support via index signals early this coming week. A decline to below the June 2011 lows will sell the 35-39 index (since it’s now 35-39 trading days from the June low) and that will negate any possibility of true SKI bull market for at least several months. If that occurs, rises will once again simply hit index resistances, as has occurred since January of this year. If prices can hold above the June low, the indices could generate a new buy signal in a week or two, but the long-term system has sold after selling in the summer of 2008, buying at the low in August 2009, and then selling and re-buying immediately in early July of this year. As I wrote to subscribers before this recent plunge, “The indices are selling and the best that I can say is that it’s dangerous”. Personally, I’m still holding my long-term physical gold position that I initiated on the 2008 plunge because the very long-term remains bullish from the 2008 Life Run pattern low and will remain so until USERX manifests a Death Run top ala May 2006. But as I’ve reported for months now, one has to be concerned about that apparent (but not historically validated) Death Run top in SLV at the May 2011 high.
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.