Special SKI Report #61
Gold Stocks: Long-term and Short-term Update

Jeffrey M. Kern, Ph.D.
Email: jeff@skigoldstocks.com
USERX | historicals
Written Oct 25, 2009
Published Oct 26, 2009

Current USERX price = 15.10, Up 8% since the last report 3 weeks ago.

Introduction (repeated from prior Reports):

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.

New Material:

In the last gold stock SKI Report written on Saturday 10/03/09, titled “SKI Gold Stock True Bull Opportunity Approaching”, I described how we had the opportunity for a true SKI bull market in the gold stocks and the precious metals’ sector. Prices basically needed to stay flat or lower for another 1.5 weeks. Unfortunately, prices immediately rose from the time of that last Update and the market avoided generating a “true SKI bull market”. I say “unfortunately” because the truly large and sustained historical advances in the gold stocks have occurred during such bull markets. The avoidance of the true SKI bull does not mean that prices can’t rise, but in the long-term sense (3-12 months), non-bull market rises have previously resulted in declines that wipe out most, if not all of the gains for long-term holders.

Although the true bull market buy signal (a 92-96 index buy signal that is On the Path) was not obtained, the very long-term outlook (over many years) turned bullish in the Fall of 2008 due to the special “life run low” pattern. Such life run bullishness occurred in: (1) 1976 and led to the 1000% rise into a death run top in 1980, (2) 1982 and led to the 350% rise into a death run top in 1983, (3) 1993 and led to a rise of only 95% into the death run top in 1996, and (4) 8/31/1998 and led to a rise of 510% into the death run top of May 2006. You can see how the prior life run low bullishness has lasted between 3 and 8 years. We have now used up one year since the 2008 life run low and we should have years to go.

Each of those life run lows was followed by one or more true SKI bull market 92-96 index buy signals. The 92-96 index never buys at a low. It is just the index that indicates that an accelerating and sustained rise is beginning. The true SKI bull signals occurred in: (1) 1978 for a 500% rise over 2 years, (2) 1982 for a rise of 250% in about a year, (3) 1993 and only made 50% (a rather “poor” bull market), (4) 2001-2002 for a rise of 300% over 7 months, and (5) 2005-2006 for a rise of 130% over 10 months.

If you compare the life run lows and the subsequent true bull markets, you can see that the bull market can take quite some time to occur after the life run low. If one bought the life run low on 8/31/1998 (I did), prices immediately rose, but then declined to a lower low a year later before really rising once the true bull market signal was obtained in 2001. In 1976, it took 2 years and a rise of about 100% before obtaining the true bull market and the “skyrocket”. In 1982, it took only one month and a rise of 33% from the life run to obtain the true bull market.

Conclusion:

Since 1974, all life run lows have eventually been followed by 92-96 index true SKI bull markets that have marked the acceleration of the long-term rise and captured the most powerful rising phases. We obtained a life run low in the Fall of 2008 but still have not obtained the true SKI bull market signal. Although the market avoided the opportunity that we had for such a true bull market over the past few weeks, a true bull market signal should eventually occur. Currently, we won’t have another chance for a true bull market for at least a few months.

In the short-term, SKI remains long from the 8/26/09 35-39 index buy signal, but that intermediate-term buy signal met its price and time projections (a 17-21% rise) in September and again in October. The current index signals are not of a high enough probability to make a clear short-term prediction. Prices could still rise again another 15+% over the next three weeks and then go into an intermediate-term decline, but historically, after the time and price projections have been met, prices should now decline to a 35-39 index sell signal over the next 1.5-2 weeks to another potential short-term 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.

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email: jeff@skigoldstocks.com

Jeffrey M. Kern,Ph.D., is an academic psychologist with a specialty in the measurement and prediction of human behavior. The communications provided are for informational purposes only and are not intended to be investment advice or recommendations for specific investment decisions. Dr. Kern is not a registered investment advisor, but is registered as a commodity trading advisor (CTA). The information provided is considered accurate, but cannot be guaranteed. Investments/trading in narrow market segments or gold futures is for individuals willing to accept a higher level of risk for the opportunity of greater returns. Past performance is no guarantee of future performance. His website is www.skigoldstocks.com.

Communications should be sent to: jeff@skigoldstocks.com.

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