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 8/08/10, I described the multi-year bullish technical picture and how the master 92-96 index (required for true bull markets) had just barely avoided a sell signal on 7/19/10. Not only was SKI on a long-term (221 index) buy signal from 8/18/09, but we also had not obtained a 92-96 index sell signal, just avoiding it by one day (on 7/19/10). That day continues to be the intermediate-term low. However, on a shorter-term basis, prices had risen into multiple resistance signals on 8/06/10 and the intermediate-term (several month) trend had not yet turned up via a 35-39 index buy signal. I described how the month of September was the time when a large directional move usually occurs and that despite the tendency for prices to rise in September, it was still possible for the 92-96 index to sell towards the end of August and portend a bearish September+.
Since that last Update, the gold stocks immediately declined for 3 days from that short-term index resistance, then rose to a higher high on 8/18/10 to hit/touch the 35-39 index, and then fell again for 4 days into 8/24/10. The 8/24-8/26/10 WAS supposed to be the critical period (“towards the end of August”) when the 92-96 index could sell and turn the September period towards bearishness.
On 8/24/10, the dependent measure, USERX, fell for its 4th consecutive day to 16.12. The prices from 92-96 trading days earlier were 16.19, 16.41, 16.21, 16.08, and 16.28. If the current price falls below the index’s back prices, it generates a signal. But the gold stocks just barely held above that USERX 16.08 and gold bullion exhibited a traditionally bullish “key reversal higher” (a lower low than the prior day and a close above the prior day’s high). So support had held again.
However, the intermediate-term 35-39 index still had not bought at USERX 16.12. It was close to buying because the current price was actually staying above that index’s declining back prices from 35-39 trading days earlier. Those back prices were declining to 16.58, 16.16, 15.91, 15.65, and 15.96. If the gold stocks could rise the next day (8/25/10) to USERX 16.58 (up about 3%), the 35-39 index would finally give its intermediate-term buy signal. USERX rose to close at …16.58 (on 8/25/10) and index’s signal was generated.
The indices continue to mark the critical points in time and price for a broad basket of gold stocks and bullion. Therefore, when the gold stocks surged higher on Tuesday (8/25/10), with USERX closing at the exact penny that was needed to generate a 35-39 index buy signal, all of the major SKI indices went on buy signals.
Since there is never any certainty when it comes to predicting human behavior, the 92-96 index continues to be the sell-stop. If prices fall below those back prices, the index will sell. It came so close to selling several times during this summer’s price declines, but still has not sold. If you look back 92-96 trading days, you’ll see that USERX is in the 15.66-16.28 range at this time, but the back prices are starting to rise. They rise to the May 2010 high of USERX 17.57. Therefore:
Prices need to rise in September to prevent SKI from selling the master 92-96 index that’s been on a buy signal for more than 2 months. The 35-39 index finally gave its buy signal on that “perfect” rise last Tuesday (8/25/10). The 221 index buy signal from almost exactly one year ago, remains intact (it could have sold last week to turn things bearish). Almost anytime that prices rise 5% in 3 trading days, as has happened coming into this weekend, the goldies are getting short-term overbought, but mechanical SKI actually continues on its bullish buy signal going into the important trending month of September (unless/until that 92-96 index sells)! The bear’ summer attempts to sell the 92-96 index all came very close to generating the sell signal, but that sell still has not happened (smile).
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.