Current USERX price = 9.86, Down another 20% since the last report 3.5 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 on 9/17/08, titled "The Great SKI Puke Bottom" (http://www.321gold.com/editorials/kern/kern091808.html), I described (in a purposefully delayed manner) how the gold stocks had manifested (on 9/09/08) the very rare run pattern that had marked long-term bottoming processes four times since 1974. Jeff had bought gold coins at $743 (basis spot gold), December gold futures at around $754, and gold stocks on 9/10/08 and 9/11/08 at USERX 11.34 and 11.19.
The above bullishness did not emanate from a "perennial gold stock bull" writer/predictor. The May 2006 high in the gold stocks had manifested a run pattern that had marked all of the multi-year topping patterns since 1974 and therefore, despite buying and selling for profit multiple times since May 2006, the overall long-term outlook always had a bearish slant from May 2006 until 9/09/08. Readers found it hard to believe that such long-term bearishness on the gold stocks could be correct when the major gold stock indices (e.g., the XAU, HUI, and even USERX) made new highs in March 2008 while Jeff was selling his USERX at 19.17 and his gold futures at over $1000 on 3/18/08 after a one-month trade.
And then came the "crashes" and the long-term bottoming call on 9/09/08-9/11/08. Many small gold company stocks had lost 80-90% since the May 2006 high, as had happened subsequent to the four prior historical topping patterns. And now everything was supposed to have turned to the bullish side as of that September 2008 run pattern. USERX rose 24% in just 9 trading days off of that run pattern buy and many gold stocks rose 40%. SKIers were swimming in profits!
Run patterns are separate from the mechanical/mathematical SKI indices (see the very top of this Report or http://www.skigoldstocks.com/about.php). The SKI indices have never generated buys at multi-year lows. The signals usually occur as prices rise. In the current situation, prices rose to hit/touch/break the indices at the recent high on 9/22/08 at USERX 13.74, but did not generate a sell signal until 10/01/08 at USERX 12.45. The actual pattern of short-term index signals was most unusual: A sell on 9/29/09 at USERX 12.53, a buy on the next day at USERX 12.32, and a sell on the next day at USERX 12.45. And as usual, in order to get that pattern, the gold stocks had performed to the penny and to the day relative to the SKI indices (I was very proud).
I write about failures as well as successes. The short-term SKI indices sold on 10/01/08, but it was the first time in 34+ years that Jeff (the developer and keeper of the SKI indices) had seen 3 signals in a row. There had been multiple times when the indices had generated 2 signals in a row and in each of those instances, prices had blasted upwards through the short-term sell signals. Therefore, Jeff INCORRECTLY maintained his bullishness and avoided selling due to the long-term bullish run pattern. The next day (10/02/08), the gold stocks crashed, but besides selling his gold futures for a profit of about $8400 per contract, I maintained a bullish posture.
Why? Because when the short-term SKI indices sell on a rise, they will generate a buy signal if prices decline. On 10/02/08, if prices fell from USERX 12.45 to below the historical run pattern low of USERX 11.09 (a seemingly impossible one-day crash), the indices would simply generate new buy signals in a rapid manner. And that's what happened: USERX dropped from 12.45 to 10.87 in one day and the SKI indices (including an index that uses prices from 660-664 trading days earlier!) executed their buy signals on Monday, 11/06/08, at USERX 10.34.
Therefore, the long-term run pattern was bullish AND the SKI short-term indices were on buy signals. If one was doing anything, one was supposed to buy more according to SKI!
The gold stocks have "crashed" to lower lows than the historical bottoming pattern obtained on 9/09-9/11/08 and mechanical SKI has generated its short-term buy signal last week. Obviously, the general stock market crash has pulled down the gold stocks (as I have always written; gold stocks can rise when the general market is flat, rising, or falling gradually, but not during severe stock market declines). Personally, I am now sitting at a significant loss on the largest investment play of my life. I have never "had to" (in a disciplined manner) remain long and endure such a paper loss of more than 11% (as of Friday, 10/10/08). Such short-term index buy signals have never really lost money in 34 years (averaging a profitable buy/sell pattern slightly more than once per year on average). Therefore, the question is whether "the world is different this time around" and whether SKI will finally be stopped out at a loss as the time period for this buy signal expires over the next 1-2 weeks. You may believe that "the financial world is ending" shortly, but SKI suggests otherwise, at least for the gold stocks. My writings always include emotional reports, and I can report that I am depressed, anxious, and most worried that the gold stock decline will continue, but the SKI indices and the long-term run pattern say otherwise and I am supposed to profit. It is difficult to believe in any "system" if you haven't followed it for years, and even I/Jeff has difficulty believing despite "skiing" since 1985, but I follow the indices and the run patterns. And note how I always include that next-to-last sentence below! SKI has allowed me to survive and prosper, at least up until now...
My Very Best Wishes during this most difficult period,
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. 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.