Current USERX price = 18.27, Up $1.32 (7.8%) 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.
In the last gold stock SKI Report written on Sunday 8/29/10, I described how the indices were bullish for the month of September: The master 92-96 index had just barely avoided selling several times at each of the summer lows and the intermediate-term 35-39 index had just executed its buy signal on 8/26/10 at USERX 16.78. And as long as the gold stocks remained above the prices from 92 through 96 trading days earlier, mechanical SKI would remain bullish (although the long-term system would remain bullish anyway as long as prices remained higher than prices from 218 through 222 trading early; as per that 221 index buy signal that generated on 8/17/09).
Since that last Report, the gold stocks and gold have basically just gone higher. Gold bullion has made new all-time highs and many gold stocks, including most broad-based measures such as the mutual fund USERX, have exceeded their 2009-2010 highs! All of the regular SKI indices (i.e., the 16-20, 35-39, and 92-96 indices) have therefore remained in their bullish positions.
Today I’d like to write a little about the second set of SKI indices that comprise a very long-term system. These indices actually correspond to the regular indices but are “inverted” from the regular indices. The regular indices are rather logical: The master index is the longer one (the 92-96 index), the intermediate-term index is the index of medium length (the 35-39 index), and the short-term index is actually a contrarian trading index that sells on rises and buys on declines (the 16-20 index). The long-term indices are the 218-222 index, the 439-443 index, and the 660-664 index. They turned out to “upside down” from the regular indices when the research was done in 1985. The master long-term index is the one of shortest duration, the 218-222 index. It’s been on a multi-year bullish buy signal since that low on 8/17/09. The intermediate –term index is the 439-443 index, not surprisingly. But the index that looks the furthest back in time, the 660-664 index, is the equivalent of the regular system’s short-term index! In other words, as prices rise over prices from 660-664 trading days earlier, the 660-664 index generates a sell signal and when prices fall below the prices from 660-664 trading days earlier, the index generates a buy signal.
I usually don’t mention or describe those long-term indices because they typically only become important once a decade. And that’s what has happened over the past 1.5 years.
The important point is that the 663 index has marked the important highs in gold and the gold stocks during the last 1.5 years: When prices have risen over the prices from about 3 years ago, a meaningful high has occurred to within a day. Those highs occurred on 6/02/09, 12/02/09, and 5/12/10.
The 663 index is not perfect (or I’d own “the world”) because some of the other 663 index sell signals have only marked short-term resistance. For example, SKI recently had a 663 index sell signal on 9/07/10. That index signal did not mark a meaningful high, but gold and many gold stocks did decline for a few days into another 663 index buy signal that generated on last Monday (9/13/10). And the next day, gold bullion rose $25 to a new all-time high as USERX rose strongly to a new high for 2010.
That strong rise was sufficient to bring prices back over the 663 index to generate another sell signal on last Thursday (9/16/10).
Although the regular SKI indices are all bullish until a 92-96 index sell signal, the 663 index has just executed another sell signal that marks resistance. It “just so happens” that the back prices for the 92-96 index will be rising this coming week to the May 2010 high of USERX 17.38, 17.57, 17.19, 17.15, and 16.75. Therefore, if the 663 index sell signal stops another rise, as it often has for the past 1.5 years, a decline to below the 92-96 index’s back prices is still possible despite gold’s and the gold stocks’ rise to new highs last week. In particular, this coming Wednesday (the day after the U.S. Federal Reserve meeting) is likely to be an important day when a quick plunge could fall below the 92-96 index.
So, we are at the 663 index’s resistance and at another important juncture because the 663 index represents SKI’s LAST RESISTANCE. If the gold stocks quickly decline about 6%-9%, the 92-96 index will be likely to sell. That sell signal is SKI’s stop-gain on long positions. BUT I’VE GOT TO ADD, THAT IF SUCH A DECLINE OCCURS AND THEN THE GOLD STOCKS HOLD, THE SKI INDICES ARE LIKELY TO GO TO A NEW AND EVEN MORE BULLISH 92-96 INDEX BUY SIGNAL WITHIN 2 WEEKS FROM NOW THAT WILL BE IDENTICAL TO THE ONE THAT GENERATED IN 1979 AND SET OFF THAT GREAT BULL MARKET RISE. As they say, “We’ll see”, but the prospect is most exciting (to me).
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.