Current USERX price = 11.30, Up 28 cents (2.5%) 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.
The last gold stock SKI Report, written on Sunday 7/29/12, described how the SKI long-term indices continued to be bullish and how the long-term supportive 884 index has been hit/touched again on 7/23/12, but that the most important immediate factor was the run pattern: A rise on 7/30/12 would provide a potentially very important 2 Down and 5 Up run pattern. Such rare run patterns often mark major turning points ala the 2 Down and 5 Up run pattern that marked the major high in the gold stocks on 12/06/2010.
Thankfully, the gold stocks did rise on the day after that report was written (7/30/12). That completed the run pattern. The importance of any particular run pattern is strongly correlated with its “strength”. “Strength” refers to the size of the price move: The stronger the move, the more important the run pattern is likely to be. A “clearly strong” run averages 2% per day. A mediocre/weak run averages 1% per day. For example, the 12/06/10 run pattern averaged 1.9% per day and (in hindsight) marked a USERX closing high that has persisted for 1.5 years. The current run higher began at USERX 10.22 on 7/23/12 and ended at 11.09 on 7/30/12. Therefore, USERX rose an average of 1.7% per day. Frankly, that’s not as strong a rise as I would have liked to mark a major bullish turning point, but it’s “in the ballpark”. Although it appeared to be unlikely for this run pattern to have marked a high (because the gold stocks were so oversold), it’s been nice to see the gold stocks rise over the top of that 5 Up run (above USERX 11.09). The continuing rise over the top of that run pattern is consistent with the run pattern having marked a low and not having marked a high.
The gold stocks have obviously been in a major decline during 2011-2012. When the market rises after such extended declines, it will hit multiple levels of resistance that are usually marked by the SKI indices: Rising first to the 16-20 index resistance, then the 35-39 index resistance, and if the rise persists, up to the final resistance marked by the master 92-96 index. For example, the rise from the May 2012 low executed a 16-20 index resistance signal on 6/06/12. And then USERX hit the 35-39 index on 6/12/12. Those resistances allowed me to “call” those highs.
The current rise yielded a 16-20 index resistance signal during the week following the last report, but the decline after the 5-Up run simply generated a quick 16-20 index buy signal on 8/02/12. The expected rise from that buy signal quickly went above the next 16-20 index sell signal and generated the second resistance signal (the 35-39 index) on 8/16/12.
A true SKI bull market (where prices rise for a year+ for 100-500% gains) requires a 92-96 index buy signal that is On the Path of Trades. Last week’s 35-39 index buy signal was On the Path of Trades and a specific pattern of market behavior is needed to change the Path onto the 92-96 index. That requirement is for the current rise to continue after the second resistance signal (often after a brief decline) and go up to the master 92-96 index. The 92-96 index signal should/will mark the final resistance. A subsequent 1-3 week decline then needs to go back below the prices from 92-96 trading days earlier. That decline “opens” the Path of Trades to the next index buy signal (if/when such a new buy signal occurs). And if that next buy signal is a 92-96 index buy signal (as the current price is above the prices from 92-96 trading days earlier), SKI begins a potential true bull market.
The 92-96 index changes each day, but over the next several weeks, it is approximately 5% above the current price. If the gold stocks can rise to the index and then decline, the 92-96 index is likely to generate the next step needed to set up a bull market: A 92-96 index sell signal as the index’s prices continue to rise. But if you look back 92-96 trading days from early September, you can see that the index’s prices then begin a strong decline (corresponding to the decline that began on 6/07/12). It is at that time that the 92-96 index “can” (not “will”) re-buy for the potential bull market. For those readers who prefer a visual display, here is a graph of the SKI indices. USERX and the HUI are just above the red line 35-39 index and need to rise above the green line 92-96 index, fall below it, and then be above that green line as it declines in order to generate the potential bull market index signal.
The important run pattern described in the prior report DID occur and is consistent with a major bullish turning point for the gold stocks and the precious metals’ complex as of 7/23/12. But the rise from 7/23/12 hit the second level of index resistance last week. Due to the bullishness of the SKI long-term system and the completed run pattern, now would be the time for a continued rise for several weeks (not necessarily tomorrow) into the major 92-96 index resistance signal. Such a rise would be the first required step in setting up a true SKI bull market. If/When prices rise into such resistance (and probably prior to the next 321gold SKI Report), Jeff will recommend doing some selling based upon the strong probability of a decline that takes prices back below the 92-96 index. And then we would have the rare set-up for a major bull market in the gold stocks.
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.