Current USERX price = 16.30, Down $1.67 (9.3%) since the 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.
On 8/28/11, USERX had risen to the first resistance of a 16-20 index sell signal and the HUI had risen to a 16-20 index sell signal AND a potential bull market 92-96 index buy signal (an apparent break-out). To quote from that article “the gold stocks had the potential to rise to a 16-20 index overbought sell signal and more importantly, if the rise continued past those 16-20 index resistance signals, the next stop would be the 92-96 index (the 35-39 index has been on a buy signal since 7/11/11). As I’ve tried to describe in the past few articles, if USERX/HUI rises to a 16-20 index sell signal and then a 92-96 index buy signal, the gold stocks have always subsequently retreated. In the current situation, the 92-96 index buy signal would be a potential true bull market buy signal, but the 92-96 index would need to avoid selling on the subsequent short-term decline in order for it to be a bull market”. And in the conclusion section of that article, I noted that, “USERX still needs a 7-9% rise to hit its 92-96 index” and “The USERX 221 index is on a sell signal (but a rise to about USERX $18.80 will re-buy that index)… Gold bullion remains heavily overbought. And yes, I’m still concerned about that apparent (but not historically validated) Death Run top in SLV at the May 2011 high that would portend a 50-70% decline.”
Therefore, the HUI had given its 16-20 index sell signal AND a potential true bull market 92-96 index buy signal, but USERX (my primary dependent measure) had only generated its 16-20 index sell signal and might still rise to give its potential bull market 92-96 index buy signal. And a rise to over USERX $18.80 was needed to give the 221 index buy signal that is required for a true bull market. Furthermore, when SKI generates a 16-20 index sell signal AND then a 92-96 index buy signal as the gold stocks rise, the key is to see whether the decline that follows will sell the 92-96 index (to end the chance of a true bull market).
Since that last Update in late August, the gold stocks continued to rise. Therefore, those SKI index signals on the HUI did NOT mark an intermediate-term top, but the index pattern still portended some decline to test whether the HUI’s 92-96 index bull market was “real”.
USERX rose to over $18.80 on 9/08/11 and I truly predicted that occurrence for subscribers AND I was calling for that to be “some type of top”. When USERX rose to over $18.80 on 9/08/11, it generated the USERX 221 index buy signal, to “mark the market spot”. That rise also hit/touched the 92-96 index (and another long-term index) to mark resistance without generating the USERX 92-96 index buy signal. It looked like THAT was the intermediate-term high (finally) AND IT WAS.
If the ensuing decline fell below the 35-39 index, it was going to yield a most bearish Double Double Sell index pattern (I know that the SKI jargon is tough; A Double Sell between the USERX 16-20 index sell signal on 8/26/11 and a new 35-39 index sell signal, as well as a Double Sell between the new 35-39 index sell signal and the prior USERX 92-96 index sell signal). The gold stocks fell to within one day of generating that very bearish pattern on 9/14/11 but still needed a 3% decline on 9/15/11 to generate the very bearish 35-39 index sell signal. The gold stocks declined over 3% during the morning on 9/15/11 and then recovered. That avoided the 35-39 index sell signal in the last few hours and it looked like a low. Would the gold stocks then rise to actually generate the USERX 92-96 index buy signal?
Yes, the gold stocks rose enough on 9/16-9/19/11 to generate the 92-96 index signal for execution the next day. That 9/20/11 index signal (one day before the U.S. Federal Reserve announcement) was a potential true bull market buy signal BUT has always yielded some type of decline to below the 9/20/11 closing prices (not an hour decline; a multi-day decline). So what did Jeff DO? I decided to buy half of my intended gold stock position on the potential bull market buy signal because I was afraid that if I remained in cash, that I’d be emotionally unable to refrain from buying a further short-term rise. And then I’d buy the rest when prices fell to below the buy-in price as USERX hit the supportive SKI index signals. After all, the bull market buy signal looked good BECAUSE IT WOULD TAKE MORE THAN A 10% FAST DECLINE TO SELL THE 92-96 INDEX AND DESTROY THE POTENTIAL BULL MARKET. How likely was that?
I purposely delayed writing this Update for one week because I “knew” that last week was going to be a “big” week. I apologize for that delay, but I felt the need to reserve that information and the index’s marking of 9/20/11 for subscribers. I was “right” on that call, the SKI indices and I were ‘right” on marking and calling the 9/08/11 gold stock top, and the 92-96 index was “right” for marking 9/20/11 as a critical point. But Jeff was dismally “wrong” on the even more important decision to buy half of his intended gold stock position on the 9/20/11 potential bull market buy signal that has always yielded some type of “draw-down”. And then the gold stocks immediately crashed after that 9/20/11 index signal.
The HUI has fallen to hit/touch its 92-96 index (go back 92-96 trading days and compare those 5 closing prices to Friday’s closing price of 536.40). It has marked this coming Monday (9/26/11) with a 16-20 index short-term oversold buy signal, is within two days of generating its 35-39 index sell signal, and one day of selling its 218-222 index. USERX is marking Monday with a 35-39 index sell signal and a 16-20 index buy signal. USERX is within one day of generating its 92-96 index sell signal. Here come the “IF” statements. If USERX could surprisingly rise at least 5.8% on Monday, the 92-96 index sell signal would be avoided and a new 35-39 index buy signal should/would initiate, in just a few days, a great bull market impulsive rise. Such an index pattern is a classic bull market pattern and fits with analysts who are already calling Friday as a low. That’s such a rare occurrence that it’s more likely for prices to decline for another day or two into the index signals. That would kill, once again, any intermediate-term likelihood of a gold stock bull market. Price rises into the SKI indices would then continue to mark resistance (as has happened since I wrote how the gold stocks had changed in my January 2011 article) and I’ll use such a rise to exit the rotten purchase that I made last week.
On the positive side, this was not the end of the long-term bull market because SKI remains on the 2008 Life Run low (after an August 1998 life run low and a May 2006 death run top). Notice how I never put an “if” on that statement. But, as I’ve regularly mentioned since May 2011, I’m still concerned about that apparent (but not historically validated) Death Run top in SLV at the May 2011 high that portended a 50-70% decline from its $50 top. That fits with silver’s relatively poor recent performance and the recent “destruction” of the more industrial-type metals.
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.