Current USERX price = 7.20, Up 32 cents (4.7%) 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 10/06/13, described how the gold stocks had fallen to a 35-39 index sell signal that had stopped Mechanical SKI out of a long position from earlier that week and that the index signal had better have marked a low if the chance for a bull market 92-96 index buy signal was going to persist: A decline to new 2013 lows (below the June 2013 low) would eliminate the indices’ opportunity to signal a potential gold stock bull market. USERX and the HUI were bearishly below all of the SKI indices.
With the benefit of hindsight, the 10/04/13 did not mark a low as SKI was selling. The gold stocks simply continued to meander lower to threaten the June 2013 low. Nonetheless, the decline held above the June 2013 low of USERX 6.27 when the market manifested a “key reversal higher” on 10/15/13 (a lower low than the previous day and a close above the prior day’s high). The 8/27/13 top was marked by a “key reversal lower” and then there was a “key reversal higher” after an almost 8-week decline. SKI did not generate any type of index buy signal at the 10/15/13 positive reversal.
The failure of the bears to produce a new low for the year has kept alive the possibility of a SKI bull market in the gold stocks and the precious metals. The HUI rose last week to the first index signal, a 16-20 index sell signal executed on 10/24/13 at HUI 244.22. USERX has just generated its 16-20 index sell signal on Friday that is executing on this coming Monday (10/28/13; index signals execute one day after they generate in order to provide a one-day advance notice for execution at the next day’s close).
These 16-20 index sell signals represent first resistance but provide for bullish possibilities: Essentially this index signal represents the initial attempt to breakout from a protracted downtrend. If the gold stocks decline from here, the 16-20 index must/will generate a buy signal. And if prices rise from here or even remain rather flat, the USERX (and probably the HUI) 92-96 index will generate its potential bull market buy signal either this coming week or the following week. In other words, the indices are set up for Mechanical SKI to generate another buy signal whether the gold stocks decline OR rise. That corresponds to the gold stocks and gold having broken above their chart downtrend resistance lines from the August 2013 high into the recent October low.
Analysts’ definitions on bull markets vary, but usually are based simply upon a certain percentage rise from a low (e.g., a 20% rise from low defines “bull market”). SKI defines bull markets as initiating from a 92-96 index buy signal that is On the Path of Trades. For example, the rise from the summer of 2007 into October 2007 and March 2008 was NOT part of a bull market: It was a corrective rise, did not begin with a 92-96 index buy signal, and after SKI exited on the day of the high in gold on 3/18/2008, was followed by the crash. Even though that crash yielded a multi-year Life Run low later that year, the subsequent rises were via 35-39 index buy signals and the Path of Trades wasn’t on a true bull market 92-96 index buy signal. The market did generate some 92-96 index buy signals during 2009-2011, but they were either Off the Path of Trades or were XXed Out (i.e., they followed Double sell signals between the 35-39 index and the 92-96 index).
The current POSSIBILITY of a 92-96 index buy signal WILL be On the Path of Trades and will NOT be XXed Out. The 92-96 index buy signal has not yet been generated, but appears to be likely: A continuing rise or even sideways movement over the next 1.5 weeks will generate the 92-96 index buy signal. Please note that even if such a buy signal is generated, it does not guarantee a SKI market: Most of these buy signals fail within a week of buying, but if the subsequent decline fails to sell the 92-96 index, the bull will “awaken”. Look at the prices from 92-96 trading days ago. Those prices are declining towards the June 2013 low and then will rise. IF USERX/HUI/GDX CAN GET OVER THOSE DECLINING BACK PRICES AND THEN AVOID FALLING BACK BELOW THEM (QUICKLY), THE 1+ YEAR BULL MARKET (historically yielding rises of 60-400%) SHOULD BE STARTING. Failed 92-96 index buy signals almost always sell (and stop out Mechanical SKI) within a week after buying. The last 92-96 index buy signal that was On the Path of Trades and wasn’t XXed Out occurred on 9/27/2011. It sold a week later at a loss and Jeff reported long-term bearishness. The subsequent 92-96 index buy signal that was On the Path of Trades (but was XXed Out) executed on 1/16/2013 and then sold on 1/24/2013. It yielded the protracted decline into June 2013. When 92-96 index buy signals fail by selling within about a week after buying, the market is bearish.
We DO continue to have the most reasonable possibility of a new 92-96 index buy signal within the next 1.5 weeks if prices rise or remain flat. If the gold stocks decline before the 92-96 index buy signal generates, Mechanical SKI will still buy for a short-term rise, but the opportunity for a bull market would appear to have been avoided. It’s actually been 7 years since the last gold stock bull market (2005-2006) that caused Jeff to initiate an “inexpensive” subscriber service. There have only been five SKI bull markets since 1974 (1979, 1982, 1993, 2001, and 2005). Since it’s been 7 years since the last one, the time IS historically “ripe” for another bull market that yields a 100-500% rise in the “conservative” USERX mutual fund over a year or two. If the 92-96 index does generate a bull market buy signal (as is expected) and then fails (unknown), another long-term decline should follow.
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.