Special SKI Report #109
Gold Stock Update

Jeffrey M. Kern, Ph.D.
Email: jeff@skigoldstocks.com
USERX | historicals
Written Sep 9, 2012
Published Sep 10, 2012

Current USERX price = 12.54, Up $1.24 cents (11%) 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 gold stock SKI Report, written on Sunday 8/19/12, described that an important bullish run pattern had occurred from the low on 7/23/12, that prices had risen to the second level of index resistance, and that a further rise to the major third level of index resistance (the 92-96 index) was expected. If such a rise occurred, Jeff was likely to do some selling before the next SKI Report (this one), and that a specific index pattern could develop that would be consistent with a true gold stock bull market (ala 1979, 1982, 1993, 2001, and 2005 when the gold stocks rise 100-500% in a year).

In the week after that last Report, the gold stocks rose for four consecutive days. The rise generated the HUI’s 92-96 index resistance signal but just missed (by one day) generating that important index signal for USERX. And then the gold stocks declined for 5 consecutive days into 9/30/12. The decline yielded a bullish run pattern of 4 Up and 5 Down AND was marked by the HUI’s 92-96 index sell signal. The prior Report described the index pattern needed for a “true” SKI bull market: “That requirement is for the current rise to go up to the master 92-96 index. The 92-96 index signal should/will mark the final resistance. A subsequent 1-3 week decline then needs to go back below the prices from 92-96 trading days earlier. That decline “opens” the Path of Trades to the next index buy signal. And if that next buy signal is a 92-96 index buy signal (as the current price is above the prices from 92-96 trading days earlier), SKI begins a potential true bull market”. Therefore, the HUI, but not USERX, had completed the first two steps needed for the potential bull market (the 92-96 index resistance buy and the 92-96 index sell signal).

The decline into the 8/30/12 run pattern and index signal, not surprisingly, marked the next short-term low. And of-course, prices exploded higher during this past week. This past week WAS the time period when USERX was expected to generate its 92-96 index resistance signal based upon the index’s back prices from 92-96 trading days earlier. That’s why, in the prior Report, I stated that I’d likely be doing some selling prior to this SKI Report. The index signal executed on this past Thursday (9/06/12). And the HUI also executed its new 92-96 index buy signal, completing the bull market pattern of a 92-96 index resistance buy, a quick 92-96 index sell, and a quick new 92-96 index buy signal.

I use the index signals and run patterns to assist in simple “wave counts”. From the 7/23/12 low, there was the 5-day run higher to the first resistance 16-20 index sell signal. I therefore counted 7/30/12 as the end of Wave 1 higher. The brief decline into a 16-20 index buy signal that generated on 8/02/12 is likely to have been Wave 2 down. The strong rise into index signals accompanied by a run of four days up into 8/23/12 was therefore perceived to be a Wave 3 higher and the 5-day run down into the HUI’s 92-96 index signal appeared to be a Wave 4 down into 8/30/12. Therefore, if the gold stocks had really made a major turn on 7/23/12, a Wave 5 rise needed to occur. And last week’s rise into the USERX 92-96 index resistance signal did fit this wave count.

Conclusion

The gold stocks have accomplished the important rise to the master 92-96 index. The USERX 92-96 index signal and the wave count caused Jeff to recommend (and do) some selling on 9/06/12 (while retaining “core” bullish positions). The powerful rise on the day AFTER I sold (this past Friday) was not expected, but the indices are not perfect: They have an historical record of having a one-day standard deviation for marking highs/lows. Therefore, Friday’s rise did not “prove” that the gold stocks have broken above the 92-96 index resistance. A meaningful short-term decline to sell the USERX 92-96 index would be welcomed for the bullish case. If such a decline occurs, Jeff may very well be buying again prior to the next Report in three weeks. The “strange” factor that adds uncertainty, however, has been the HUI’s 92-96 index: It went onto a bull market buy signal this past week while USERX just missed that bullish index pattern. That suggests that any decline may not sell the HUI’s bull market buy signal, but Jeff’s looking for a decline at this time. The probability for such a decline will be enhanced if USERX closes lower tomorrow (9/10/12) to complete a somewhat (70%) bearish 1 Down (9/05/12) and 2 Up run pattern….

Cheers, Jeffski

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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