Current USERX price = 13.62, Down another 8.8% 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.
In the last gold stock SKI Report on 8/03/08, titled "Gold Stock Shorts", I was bearish but expecting a brief rise so that I could re-initiate my short position. I warned not to risk your money based upon my expectations, just upon index signals and run patterns. SKI was simply remaining in cash or short positions. What followed was a persistent decline in prices that did not allow me to go short again. That's OK. SKI was "cash or short" so I wasn't losing money during the decline. Rule #1 is don't lose much money, ever. Rule #2 is to act in a disciplined manner and that will probably yield profits.
In that last report, I also showed the very long-term SKI indices and reported the expectation that prices would decline to sell the 439-443 index (the red line on the next linked chart) and eventually decline to the 660-664 index (the green line in this now-dated SKI chart: http://img222.imageshack.us/img222/6109/screenhunter457th2.jpg ). Prices did generate that 443 index long-term double sell ("double sell" because the 221 index had just sold earlier) and subsequently have come down halfway to that 663 SKI index that is long-term support.
Remember, I have repeatedly warned that using a ratio analysis (e.g., the HUI to gold ratio) is problematical. People view a particularly low ratio as a buy signal. That ratio was at an historic low 3 weeks ago, but prices kept falling. The lesson is that such ratios ARE very good indicators, but like all such indicators, they work and work and then stop working for a period of time. They are excellent indicators when they are used as corroboration of a technical system that captures the "nature of the gold market".
Over the past few weeks, the gold stocks have resisted declines in gold bullion and APPEAR to be forming a base and an intermediate-term low so as to set up the seasonally-expected rise starting after the Labor Day 3-day weekend (9/01/08). On Thursday of this past week (8/21/08), the gold stocks exploded 5% higher on a 2 Down and 4 Up run pattern averaging the typical 2% rise per day. Traditional technical indicators on daily (but not weekly) charts generated a classic buy pattern: Prices rose over the downtrend line from July 15th 2008 and generated a bullish crossover on the MACD and the slow stochastic with the RSI near oversold territory. Although prices fell over 2% the next day (Friday, 8/22/08), the traditional technical breakout had been achieved.
SKI is unique. That rise did nothing to the SKI indices. Prices remain below all of the short-term SKI system indices (the 16-20, 35-39, and 92-96 indices). However, time is usually in SKI's favor and the market has been trying to base for several weeks. Therefore, this coming week, the 16-20 index back prices will be plunging down to the current price level. THAT INDEX IS RESISTANCE. Prices are expected to test that resistance. And then, very shortly after the seasonally-critical Labor Day weekend, prices will either stay up enough to generate a 16-20 index signal that will signal for SKI, that the downtrend from July 15th 2008 has temporarily ended or, if that index signal is avoided, prices will begin their next leg down to the 663 index.
The next critical psychological/technical point for SKI will probably occur towards the end of this coming week and more likely, immediately after the 3-day Labor Day weekend. Historically, prices tend to rise after Labor Day, but that seasonal tendency is only accurate about 67% over many years. The other 33% of the years, the gold stocks decline. The 90% probability is that the gold stocks will move rather strongly in one direction for one month after the Labor Day weekend. Again, I only use such data as background information. IF THE 16-20 INDEX SIGNAL IS GENERATED, THE DOWNTREND IS ENDING. But even if that happens, I can't predict some great long-term explosion: Since May 2006 the run pattern has predicted a final wash-out low that still has not been achieved. Over the past few weeks, USERX (the gold mutual fund) has fallen below its 2006-2007 lows, as I have expected for over a year now. So far, the day that USERX broke those prior lows has been the low! If an intermediate-term rise is beginning, the true and final low will, unfortunately, be delayed for months. I'd prefer to get a final plunge to begin the next multi-year bullish phase, but I am still waiting for that and will be buying soon if the 16-20 index generates its signal. Where I live, near Las Vegas, the down-trending economic conditions appear to accelerating in a depressionary scenario that could eventuate into an inflationary depression. Such thoughts are not useful for making money, in my opinion. Just follow the index signals and major run patterns. Survive and prosper...
Best wishes, Jeff
P.S. Last weekend, for the first time in my life, I disclose to you that I began investigating places to purchase physical gold coins in anticipation of a final major low. We did not obtain that final bottom yet, but I have usually been a perfect reflection of mass psychology. For example, a week after I moved to Las Vegas, the cover of Newsweek was titled something to the effect of "Everyone's Moving to Las Vegas". So now, as soon as I investigate gold coin purchases, within a day, almost everything is "sold out" (smile)!
If you are interested in following and learning more about the SKI indices, I'll write another Report for 321gold 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. 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.