Special SKI Report #95
Gold Stock Update

Jeffrey M. Kern, Ph.D.
Email: jeff@skigoldstocks.com
USERX | historicals
Written Nov 6, 2011
Published Nov 7, 2011

Current USERX price = 17.52, Up 96 cents (6%) since the 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 Sunday 10/16/11, I described how the gold stocks had bottomed on 10/04/11 and had risen to almost generate the next resistance signals via the long-term 442 index and the master 92-96 index. I did not state a prediction because I needed to wait for the actual index signals that were approaching.

That last Update occurred at a short-term high because the gold stocks began to decline the next day, but the gold stocks held up enough to generate the 442 index resistance signal on that Tuesday (10/18/11). And then the gold stocks declined sharply the next two days, back down to near the 10/04/11 low with gold dropping back to $1611.90. Although none of the indices generated buy signals on that 2-day plunge, you may recall that I was remaining long, waiting for a rise into further resistance before selling.

After that 2-day plunge, the gold stocks and gold bullion rallied strongly for 6 consecutive days into 10/28/11. The run pattern was 2 days Down and 6 days Up. That run pattern was of historical significance because the daily rise averaged more than 2% per day (USERX rose from 15.27 to 17.20 in 6 trading days). Such run patterns have occurred only 35 times since 1974 and it’s been rare for such runs to extend to beyond 6 consecutive daily rises: Only 5 of them have extended beyond 6 days up (two 7-days, one 8, one 9, and one 10).

The 6-day rise into 10/28/11 also generated three new index signals. In classic/typical/repetitive manner, the gold stocks rose over the prices from 16-20 trading days earlier, thereby generating the 16-20 index sell signal (that index generates short-term overbought sell signals on rises and short-term oversold buy signals on declines). And the rise generated a 92-96 index signal that executed on 10/28/11 (on the 6th daily rise). Therefore, SKI had a 16-20 index sell signal that was immediately followed (the next day) by the 92-96 index “buy” signal. The quotation marks around the word “buy” are meant to indicate that the index signal represented the next resistance because that index’s buy signal came immediately AFTER a 16-20 index sell signal and it was XXed Out. The XXing Out (a procedure that works to eliminate buy signals that usually lose money) was activated because this buy signal occurred after both the 92-96 and 35-39 indices had generated sell signals in September. The third index signal was an 884 index resistance signal (the 884 index compares prices from 881-885 trading days earlier) that also executed on 10/28/11.

Conclusion:

Those index resistance signals were sufficient to cause me to exit the gold stocks on 10/28/11 at USERX 17.20. And that classic run pattern often marks significant highs OR lows (e.g., the major high on 12/06/2010 at USERX 22.11 was marked by a 2 Down and 5 Up run pattern averaging 1.9% per day). The gold stocks plunged about 7% from the close on 10/28/11 into the morning of 11/01/11, but then the market recovered and USERX actually went over the 10/28/11 high this past week. One cannot rule out the possibility that the classic 2 Down and 6 Up run pattern marked a major low, but for now the gold stocks are in “No-Man’s-Land”. Prices could still rise over the next 4-9 trading days into the next resistance signal (the 35-39 index, with its back prices beginning to plunge on this coming Thursday), but sometime over the next 3 weeks the 92-96 index is supposed to sell on a decline to below USERX 17.20.

The gold stocks have been in a large trading range since the 12/06/2010 high. It’s perfectly technically feasible for the gold stocks to commence a new bull market after such a long trading range. But such a bull market (whereby prices rise 100-500% over a year+) has always needed a true 92-96 index SKI buy signal. Each time that such a buy signal has occurred over the past several years, it has failed and the gold stocks have lagged the rise in gold bullion. If you look at the large rise in the gold stocks since 2000, approximately 80% of that entire 11-year rise occurred when the 92-96 index gave its rather rare bull market buy signals in December 2001 (yielding the 300% rise into May 2002) and in August 2005 (causing me to open a subscriber website and yielding the 125% rise into May 2006). I saw this nice graph of the South African mining shares that really shows how such 92-96 index buy signals are needed for “the big rise”. It’ll happen again because we are on a 2008 Life Run low. Such an index signal can occur after just one more decline back below USERX 17.20 in a few weeks.

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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