Current USERX price = 20.36, UP another 8% since the last report 3 weeks ago. What a surge!
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 the most informative gold site, 321gold, since its inception approximately six years ago. 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 32 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 at http://www.skigoldstocks.com/about.php. 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 SKI Report on 10/14/07 continued to express skepticism that the gold stocks would extend their surge from the August 16th 2007 bottom. In the last three weeks, however, the price rise continued at an even stronger rate than during the three weeks before the prior SKI Report. SKI HAS BEEN LEFT BEHIND IN THE SNOW (i.e., "in the dust") as USERX (the gold stock mutual fund) has risen 52% over the past 55 trading days. I write about timing successes in these reports and am now writing about this miserable timing failure. It is quite painful to watch the gold stocks surge week after week while I sit in cash making 4.5%. And it's even worse when that cash in denominated in U.S. Dollars (affectionately referred to as "toilet paper" by some readers).
I could write that the rise hasn't been as wonderful as it looks: (1) All asset classes denominated in U.S. Dollars have risen, (2) Folks in other countries, whose currencies have risen relative to the U.S. Dollar, have obtained much weaker capital gains than U.S. investors, and (3) A simple money market fund investment would have returned about 7% in the 1.5 years since the May 2006 major high in the gold stocks as compared to the 14% rise in USERX since that 2006 high. But the bottom line is that USERX has risen 52% in the last 55 trading days and USERX is now 25% higher than the 92-96 index buy signal that could have been bought on 9/12/07 at USERX 16.15! I couldn't execute that buy signal because it was supposed to be marking a topping area.
Perhaps some of you are in a similar situation: The train appears to have left the station and I'm not on the train. What is one supposed to do now?
One answer is to throw caution to the wind and simply buy now or at least just do some buying every day that the gold stocks decline. In hindsight, that strategy would have worked beautifully at any time in the past two months. The difficulty with such a strategy is that all of the SKI indices are much lower than current prices. Therefore, the stop loss point on any current purchase would be well below current prices and a significant loss could occur. Of-course one can then reply, "Who cares about stop losses? Just buy and hold, forget about market timing. This is a bull market and any decline will result in an eventual larger rise!" Although I do believe that prices will be higher in the years ahead of us, that reply assumes that one's predictions are always correct. Managing money requires risk management, first and foremost.
Do you recall the folks who bought and held during the decades of the 1980s and 1990s and sat through 90% losses SEVERAL TIMES? In fact, if you'd bought USERX at the very bottom of the 1970s, in 1976, when gold fell from $200 to $103 an ounce, you'd have bought USERX at 11.30. If you'd have held that perfectly timed purchase until today, you still would not have even doubled your money over more than 30 years!
The alternative strategy is to wait for the eventual price pullback. This strategy leaves one open to the pain that the market will just continue to rise in the near term and then the pullback might even bottom at a price that is higher than the current price. Whenever the next pullback occurs, and at whatever price it bottoms, you'll still have the risk that the market will continue to decline.
But the difference between the two strategies described above is that by adopting the conservative strategy of waiting for a decline, the risk can de defined. Most people agree that losses are worse than missed gains because a 10% loss requires more than an 11% gain to compensate for the loss. Therefore, I am in the miserable position of having to sit through a continuing period when prices may rise without me while I wait for a lower risk entry point. I have only made about 10% in 2007, but I do not want to lose.
In addition, the technical problems (from SKI's perspective) that I've mentioned previously, remain in place. Prices, however, have not shown any tendency towards confirming the technical caveats that have been predictive since 1974. Is this time "different", or, as some folks write to me, "Is SKI finally broken" after 34 years"?
If you are interested in following and learning more about the SKI indices, I'll write another Report for 321gold 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.
Best wishes, distraught Jeff