Special SKI Report #174
Gold Stock Update: Wariness

Jeffrey M. Kern, Ph.D.
Email: jeff@skigoldstocks.com
USERX | historicals
Written Sunday Aug 21, 2016
Published Aug 22, 2016

Current USERX price = 10.05, Down 2 cents (.2%) since the last report 3 weeks ago.

Introduction (repeated from prior Reports):

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.

New Material

The last SKI Report, written on Sunday 7/31/16, concluded that the bull market from the master 92-96 index buy signal on 1/25/16 was continuing, but was barely holding on. Quoting from that last Report:

“All of the SKI bull markets since 1974 (when the mutual fund USERX was formed) have made significant highs after a “melt-up” phase began. The “melt-up” phase is objectively defined as beginning when a correction is shallow and only goes down to a 16-20 index buy signal (as opposed to stronger correction that goes down to a 16-20 index buy signal AND then continues down to the 35-39 index). During the current bull market, the first correction only went to the 16-20 index buy signal on 4/04/16 at USERX 6.47. That index buy signal marked the exact low and initiated the “melt-up” phase. During “melt-up” phases, there’s never been more than two such 16-20 index buy signals that have been valid (i.e., the third one has not marked a low and its occurrence has been bearish). During the current bull market, we got the second 16-20 index buy signal at the exact low on 5/27/16 at USERX 7.67. Therefore, a third decline to such a buy signal would be bearish based upon the history of prior bull markets. There aren’t any “guarantees” that such a history will continue, but that’s the best information available (in my opinion) because it’s difficult to identify a major intermediate-term high during a bull market.”

The chart of the SKI indices was provided with the conclusion that USERX (and the HUI) needed to stay above the 16-20 index’s rising blue line.

Although the gold stocks rose during the two trading days after the Report, they then declined 3% on 8/05/16. That began to move the 16-20 index towards its “unwanted” (by the bulls) index signal. Again, the prior two such index buy signals had exactly marked the bull market’s prior two brief corrective declines, but the third such buy signal had always been invalid.

The index signal executed on 8/09/16 at USERX 9.97. Jeff could not say “buy” and, in fact, was using that index signal to sell more of the long position initiated in late January 2016. The gold stocks then rose 3% on the next day (8/10/16) and quickly went back over that blue 16-20 index line for a 16-20 index resistance sell signal. Therefore, history did NOT repeat because the third buy signal yielded a profit, but the index sold for a quick and paltry 2% gain after having missed an exact third low on 8/05/16 by two trading days (which is within the normal range of error). And after the decline on this past Friday (8/19/16), USERX is less than 1% above the prior sell-stop while the HUI/GDX are lower than when that sell-stop was activated.

The other meaningful index information is that USERX hit/touched the final (the highest) SKI index on this past Thursday (8/18/16) as USERX rose to barely make at new 2016 high at 10.28. The new high reflected the continued relative strength in the smaller mining stocks, as per a new closing high in GDXJ. That last long-term index is the 884 index which compares the current price to prices from 880-884 trading days earlier. It is a “contrarian” index, meaning that the index represents long-term resistance. Therefore, USERX hit/touched the resistance on the exact day that it closed at a new 2016 high.

Conclusion

Significant wariness is appropriate for the bulls as the major intermediate-term top may have occurred via last week’s 16-20 index sell signal and the hit/touch of the long-term 884 resistance index. The 884 index may just have marked the exact top, and Friday’s (8/19/16) decline was consistent with that very real possibility. Jeff also has other reasons to be wary that are reserved for subscribers. Jeff is down to only a small long position. It won’t take much of a rise to activate a new buy and it won’t take much of a decline to activate a further sale. The indices have been extraordinarily exact during all of 2016. Purely Mechanical SKI remains completely long from the late January 92-96 index buy signal at USERX 4.99. The mechanical system always ends up giving back a significant portion of the current gain until it is stopped out via a 92-96 index sell signal, so Jeff is using the other indices to sell that purchase and/or to rebuy if there is likely to be another (unexpected) leg higher.

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.

###

SKI archives
email: jeff@skigoldstocks.com

Jeffrey M. Kern,Ph.D., is an academic psychologist with a specialty in the measurement and prediction of human behavior. The communications provided are for informational purposes only and are not intended to be investment advice or recommendations for specific investment decisions. Dr. Kern is not a registered investment advisor, but is registered as a commodity trading advisor (CTA). The information provided is considered accurate, but cannot be guaranteed. Investments/trading in narrow market segments or gold futures is for individuals willing to accept a higher level of risk for the opportunity of greater returns. Past performance is no guarantee of future performance. His website is www.skigoldstocks.com.

Communications should be sent to: jeff@skigoldstocks.com.

Copyright © 2002-2023 Jeffrey Kern. All Rights Reserved.

321gold Ltd