Current USERX price = 4.84, Up 10 cents (2%) 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 8/09/15, described how the gold stocks had broken down on 7/17/15 – 7/20/15 to remain below all of the SKI indices in a bearish configuration, but that 15 trading days had been “used up” since that breakdown. Therefore, the 16-20 index was within XX days of coming into play. The one definitive statement in that last Report was that any bullish case REQUIRED that the gold stocks rise to a 16-20 index sell signal (the blue line in the accompanying SKI chart: view here). The “XX” was explained as being a short-term single-digit number. In fact, after 15 trading days of going sideways, the market was within just 1 trading day of involving the 16-20 day SKI index.
Subsequent to that Report, the gold stocks immediately began to rise and hit/touched the 16-20 index two trading days later. After a 3-day rise to USERX 5.07 on 8/12/15 that came close to generating the 16-20 index’s signal, the gold stocks retreated for 2 days and avoided the index signal, but then rose again and got over that blue line two weeks ago to generate the 16-20 index sell signal.
The 16-20 index’s sell signal is the first resistance point on a rise during a bear market. Once the market rises to that index signal, there are only two scenarios: (1) A continuing rise to the second resistance 35-39 index, or (2) A decline that generates a supportive 16-20 index buy signal. The 35-39 index’s back prices were declining and frankly, Jeff perceived that it was quite feasible for the gold stocks to rise to USERX 5.25 to reach that index for a high-probability top and a time to hedge/sell/short. But the gold stocks stopped rising after USERX only reached 5.18 on 8/20/15 and then they had a miserably bearish day on 8/21/15: Although USERX “only” declined 3% on that day, the gold stocks manifested three simultaneous short-term bearish indications: (1) A “negative divergence with gold bullion, whereby gold rose $6.60 while USERX declined 3%, (2) A “bearish engulfing pattern” on the daily chart whereby HUI/GDX rose to a higher high than the prior day and then closed below the prior day’s low, and (3) The completion of a USERX 1 Down and 2 Up run pattern that often marks highs. Therefore, Jeff was no longer interested in being long the gold stocks in the short-term, BUT a decline WOULD have to generate a supportive 16-20 index buy signal.
The triumvirate of short-term bearish indicators on 8/21/15 yielded a rapid and strong decline last week to a marginal new multi-year low for USERX (at 4.59) and GDX, while the HUI and GDXJ tested their multi-year lows. The situation may appear to be similar to what happened in the latter portions of 2014: USERX had risen to a 16-20 index first resistance sell signal and then fallen to a marginal new multi-year low at 4.82 into a new 16-20 index buy signal before beginning a strong multi-week rise.
But the technical situation is NOT the same as late 2014. Whereas Jeff could take a significant long position at the low on 12/16/15 (with normal trepidation), last week’s 16-20 index buy signal was bought with only a small/tiny position. The difference was that this time, any brief rise was going to quickly begin to go back over that blue SKI index line for another first resistance 16-20 index sell signal.
After last week’s 16-20 index buy signal, we are within XX days of generating a second 16-20 index sell signal for resistance. Essentially, the gold stocks are caught begin the 16-20 index’s sell signals on short-term rises and its buy signals on short-term declines. BEWARE: A break below a 16-20 index buy signal should/will yield another “Armageddon-type” decline for many weeks. That’s an unusual event but we’ve seen it happen several times in the past few years. Alternatively, the gold stocks may do the more common behavior of rising up to the 35-39 index (as was originally expected until the 8/21/15 bearish day) into major resistance that would likely test the high from 2 weeks ago. And in a few weeks, the long-term master 218-222 SKI index (referred to as the “221 index”) could come into play as its back prices drop to the November 2014 low of USERX 4.82 – 5.29. The longer-term is expected to remain bearish…
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.