Current USERX price = 9.25, Down 80 cents (8%) since the last report 4 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 SKI Report, written on Sunday 8/21/16, concluded that:
Today’s report will show one of those other reasons for having been bearish after the 9/18/16 year-to-date high of USERX 10.28. Even though I waited until this report to present this information, I hope that you find it useful.
SKI generated a bull market buy signal on 1/25/16, as was reported on 321gold in February. Elliott Wave Theory (EWT) has the strong guideline that bull markets should contain a 5-wave structure: Wave 1 (Up), Wave 2 (Down), Wave 3 (Up), Wave 4 (Down), and Wave 5 (up). Therefore, Jeff was tracking USERX for those five waves. USERX is considered to be a better dependent measure than the measures used by almost every other analyst (e.g., HUI, GDX, GDM, XAU, GDXJ) because it is broader (containing stocks across multiple continents and currencies) and smoother (less volatile). The limitation is that USERX is a mutual fund and does not allow for intra-day or very short-term analysis.
The primary limitation of EWT is that the labeling or marking of waves is rather subjective. An adage is that if you place ten Elliotticians in a room, you’ll get ten different wave counts. SKI marks technical points with mathematical objectivity and therefore can be used to provide a more objective wave count.
Although the nuances of EWT are quite complex, and Jeff is not an expert on such uncertain details, EWT contains three “rules”. When Jeff reads that something is a “rule”, that means that is 100% required. That’s when EWT becomes useful to me. The three rules are:
(1) Wave 2 cannot retrace more than 100% of Wave 1.
(2) Wave 3 can never be the shortest of the three impulse waves.
(3) Wave 4 can never overlap Wave 1.
It is Rule #2 that is relevant to this report. Although the term “shortest” implies a time factor, it actually refers to a size factor and should probably be rewritten as “Wave 3 cannot be the smallest of the three rising waves in a bull market”.
After the SKI bull market began in January, the first decline yielded a 16-20 index buy signal on 4/04/16 at the exact USERX low of 6.47. The ensuing rise then corrected back to a second 16-20 index buy signal on 5/27/16 at the exact USERX low of 7.67. Those index buy signals have been reported multiple times in these 321gold reports. Hence, after that second low, these reports warned of approaching bearishness because the rise from 5/27/16 was supposed to be the 5th Wave final wave higher. Please, really look at this SKI EW chart from 7/08/16.
The key point is that the first wave higher (Wave 1) yielded a gain of 51%. The second wave higher (Wave 3) yielded a gain of just 34%. THEREFORE, BASED UPON RULE #2, THE SECOND WAVE HIGHER that yielded a rise of 34% (Wave 3) COULD NOT BE SHORTEST WAVE, AND THE THIRD WAVE HIGHER (Wave 5) COULD NOT EXCEED USERX 10.28 (34% higher from the Wave 4 low of 7.67 = 10.278).
Here is the USERX wave count chart that has been updated to the present:
Note how USERX rose to 10.28 on 8/18/16 and has never exceeded that EWT maximum target despite rising back to 10.27 just 9 trading days ago (on 9/06/16).
In conclusion, it’s wonderful to see that despite the subjectivity of EWT, its second “rule” worked perfectly in conjunction with the SKI indices marking the technical points. We started a major intermediate-term decline on 8/18/16 (as per the SKI Report from a month ago) and Jeff is in cash looking to buy an index-marked low.
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.