Current USERX price = 13.49, Up 95 cents (7.5%) 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 9/09/12, described how the HUI had generated the classic and rare true bull market index signal pattern (ala 1979, 1982, 1993, 2001, and 2005 when the gold stocks rose 100-500% in a year), but USERX had just missed generating that bull market pattern. Jeff had sold the “overweight portion” of his long position and was “hoping” for a decline to buy it back. That last SKI Report also concluded that the probability for such a short-term decline would be increased if USERX closed down on that Monday (9/10/12).
The gold stocks did decline on 9/10/12 but then exploded again on the 9/13/12 U.S. Federal Reserve announcement of more quantitative easing. Therefore, that short-term hope for a decline was wrong. USERX rose for an extraordinarily rare NINE consecutive trading days from 9/10/12 to 9/21/12, although on several of those days USERX was unchanged. The vast majority of the rise occurred on the day of and the day after the Fed’s announcement, so the additional week of rising prices wasn’t significant. But note that USERX rose for those 9 consecutive days and nothing else did (because unchanged days in USERX count as continuing the run pattern). Once again, for some unknown reason, USERX displays these run patterns (and has done so since 1974 despite frequently changing fund managers and fund holdings) and I’d certainly continue to recommend that readers pay attention to USERX (the oldest gold stock mutual fund).
The 1 Down and 9 Up run pattern into 9/21/12 wasn’t a definitive run pattern because it's so rare. During true SKI bull markets, that run pattern has not marked highs, but otherwise it has marked highs. The uncertainty is due to the fact that the HUI IS on a true bull market index pattern but USERX “just missed”. So far, the top of that run pattern at USERX 13.75 HAS been a high, but it’s only been one week and the gold stocks rebounded nicely on 9/26/12-9/27/12 after dropping 7% early last week.
The rise into 9/21/12 DID reach the next SKI index resistance target, the 663 index that had a low back price of USERX 13.80 at that time. Jeff had expected that price target after the Federal Reserve announcement. Here’s the graphical display of the indices showing how USERX hit that targeted index line. But notice how that resistance is now rising. Therefore, Jeff cannot state that the 9/21/12 high won’t be exceeded in the short-term. Yes, the gold stocks dropped 7% from 9/21/12 over just 3 trading days, but they recovered nicely after dropping to HUI 490 on 9/26/12.
The short-term outlook isn’t “callable”. I was about to write “sorry” due to the absence of a short-term prediction, but it’s important to know when one can’t make a high-probability prediction. My wave count suggests that 9/21/12 was a high and that 9-day run higher into 663 index resistance on 9/21/12 may have been a high, but I also had that wave count 3 weeks ago and the gold stocks rose 7.5% since that last SKI Report. SKI and Jeff remain long-term bullish due to the long-term SKI indices and the HUI DID generate a bull market index pattern. Jeff is open to the possibility that the SKI indices’ “bare miss” for a USERX bull market may have been due to statistical error because I don’t want to be rigid: USERX IS on a long-term 663 index buy signal and a continuing intermediate-term 35-39 index buy signal from 8/17/12. This all looks bullish for the next year and additional buys on pullbacks will be recommended (and executed by Jeff, but Jeff is already long 50% net worth in the gold stocks and 18% net worth on physical gold). I can state that a decline to below USERX 12.99 in the next 1.5 weeks will hit SKI Index support, but if that occurs, a rise MAY be followed by a several-week decline to additional index support. Be long-term bullish and short-term hesitant…
P.S. I find myself concluding with the “Cheers”, as opposed to the “Best Wishes” because the goldies turned bullish!
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.