Special SKI Report #92
Intermediate Top?

Jeffrey M. Kern, Ph.D.
Email: jeff@skigoldstocks.com
USERX | historicals
Written Aug 28, 2011
Published Aug 28, 2011

Current USERX price = 17.97, Up $1.42 (8.6%) since the 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:

In the last gold stock SKI Report written on Sunday 8/07/11 I described how the long-term 221 index had sold on 8/02/11 at USERX 17.91, but that the gold stocks were falling into index support on the following Monday-Tuesday (8/08-8/09/11) if the June 2011 gold stock lows could hold.

The June 2011 lows did hold as the general stock market plunged, gold bullion soared, and the gold stocks were "stuck" in the middle on that Monday (8/08/11). The gold stocks have risen since then and common measures of their performance (e.g., the HUI and GDX) have now come right back to their 2011 highs, approaching a potential breakout to the upside.

Although I've continued to focus these articles on my primary dependent measure, USERX, I've also been calculating the SKI indices using the HUI for more than a year because SKIers have been using the formulas and reporting how the application of the SKI indices to the HUI has added to the information provided by USERX. The decline on 8/08/11 generated 16-20 index short-term buy signals on both the HUI and USERX. Therefore, the gold stocks had the potential to rise to a 16-20 index overbought sell signal and more importantly, if the rise continued past those 16-20 index resistance signals, the next stop would be the 92-96 index (the 35-39 index has been on a buy signal since 7/11/11). As I've tried to describe in the past few articles, if USERX/HUI rises to a 16-20 index sell signal and then a 92-96 index buy signal, the gold stocks have always subsequently retreated. In the current situation, the 92-96 index buy signal would be a potential true bull market buy signal, but the 92-96 index would need to avoid selling on the subsequent short-term decline in order for it to be a bull market.

The HUI generated its 16-20 index sell signal a week ago Friday for execution the next trading day on last Monday (8/22/11). Its 92-96 index was also ready to generate its potential bull market buy signal: If the HUI rose to over all 5 of its 92-96 index back prices on 8/22/11, the 92-96 index would generate its buy signal. It "just so happened" that the prices from 92-96 trading days earlier included the 2011 closing high of HUI 606.28. The HUI closed at 605.04 on 8/22/11, so it "just missed" generating its 92-96 index buy signal on the day that it executed its 16-20 index resistance signal. Gold had risen for 6 consecutive days into 8/22/11 and when that parabolic rise ended the next day, the gold stocks declined and avoided the HUI's 92-96 index buy signal.

But now, right now, the SKI indices have generated the important index signals. USERX rose enough on last Thursday (8/25/11) to generate its 16-20 index resistance sell signal for execution on this past Friday (8/26/11) at 17.97. And the HUI needed to close over 590.18 on this past Friday (8/26/11) to generate its 92-96 index buy signal. The HUI did it towards the end of the day.

Conclusion:

This should be "the" intermediate-term moment. The USERX 16-20 index marked its resistance for the close of trading on this past Friday (8/26/11) and the HUI 92-96 index will execute its 92-96 index buy signal this coming Monday (8/29/11). Therefore, we've hit resistance as marked by the SKI indices. I do not know whether "THE day" was Friday (8/26/11) or will be Monday (8/29/11) because the indices can easily miss "THE day" by one day. The HUI's index buy signal has always been resistance under the current index pattern, but if the HUI can avoid declining enough to sell the 92-96 index, it will be on a break-out buy signal. If you go back 92-96 trading days, you'll see that the HUI's back prices are staying in the 578-590 range for the next two weeks. A decline to below that area would sell the 92-96 index and end this chance at a gold stock bull market. USERX still needs a 7-9% rise to hit its 92-96 index.

Besides the 16-20 and 92-96 indices, there are several factors suggesting that the indices are marking a top here: (1) The USERX 221 index is on a sell signal (but a rise to about USERX $18.80 will re-buy that index) and (2) Gold bullion remains heavily overbought. And yes, I'm still concerned about that apparent (but not historically validated) Death Run top in SLV at the May 2011 high that would portend a 50-70% decline.

Thankfully, the gold stocks have not manifested a death run top and remain very long-term bullish from the 2008 crash life run low pattern.

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.

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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.

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