Special SKI Report #178
Gold Stock Update: Another Rather Perfect Plunge

Jeffrey M. Kern, Ph.D.
Email: jeff@skigoldstocks.com
USERX | historicals
Written Sunday Nov 20, 2016
Published Nov 21, 2016

Current USERX price = 7.33, Down $1.29 (15%) 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

The last SKI Report, written on Sunday 10/30/16, was the first time since February that Jeff implored readers to subscribe and follow SKI. Major technical points were about to be reached based upon the SKI indices. The 92-96 index bull market from January had officially ended (although Jeff had sold months earlier), but Jeff was looking for a small further rise for a few days into a 16-20 index sell signal and then another plunge into a 16-20 index buy signal for a true Mechanical SKI buy to end the correction/decline. The conclusion was that “I can only make predictions when the SKI indices provide signals, so I remain bearish and cannot “guarantee” that a 16-20 index sell will occur during this coming week and that the index buy will occur on one further plunge”.

The gold stocks then rose, as expected, for two trading days (10/31/16 and 11/01/16). The USERX 16-20 index DID generate its resistance sell signal and Jeff/SKI obtained the sell-short signal. A plunge was expected.

But that 2-day rise was a little too strong: It went up into the USERX 92-96 index. This now gets a little “SKI-complicated” for most readers. The 16-20 index sell signal occurred, so a straight decline would yield the true buy (bottom) 16-20 index buy signal. But if prices rose into a 92-96 index “buy” signal right after that 16-20 index sell signal, IT WOULD GET EVEN MORE BEARISH AND A SUBSEQUENT PLUNGE MIGHT NOT BE BUYABLE.

The most important SKI rules are described in the free section of my website via “About SKI” (http://www.skigoldstocks.com/about.php). “About SKI” was written 11 years ago and has not changed since the rules were developed in 1985-1986. “About SKI” states that “Excellent bear market rallies occur when both the 35-39 and the 92-96 are on sells, the market rallies into a 16-20 sell signal, and then falls to a 16-20 index buy signal”. Since the bull market HAD ended via 35-39 and 92-96 index sell signals, that sentence describes what Jeff was expecting in that last public report.

But if the market rises into a 16-20 index sell signal AND a 92-96 index buy signal, the situation changes. Such a 92-96 index buy signal would be XXed Out (meaning that it too marks a top for a second shorting point). Again, “About SKI” states, “During a bear market, prices will eventually rise to give 35-39 or 92-96 index "buy" signals which will usually come within a day of marking the top of the rally. The system employs an "XXing Out" procedure to label such "buy" signals as actually marking high probability shorting points. Simply stated, when the 35-39 and 92-96 indices provide consecutive sell signals, the next 35-39 and 92-96 buy signals are XXed Out. A 16-20 buy signal is XXed Out if it immediately follows a 35-39 or 92-96 sell signal”.

If you don’t know such rules, and learn SKI, the above sentences are probably difficult to understand. But they are rather simple. We had gotten a 35-39 index sell signal and then the 92-96 index sell signal. Therefore, the next 92-96 index “buy” signal (as prices rise over the prices from 92-96 trading days earlier) would be XXed Out to mark a top. AND THEN, IF PRICES PLUNGED AS EXPECTED, THE 92-96 INDEX WOULD SELL RIGHT BEFORE THE 16-20 INDEX WOULD BUY. Therefore, that new 16-20 index buy signal would be XXed Out and dangerous to buy.

The index signals have been so exact that I’m going to bore you with some daily details. When the gold stocks rose for those two days (10/31/16 and 11/01/16 to USERX 9.03) to generate the 16-20 index’s sell signal, Jeff was hoping that they would just plunge to avoid the 92-96 index’s XXed Out “buy” signal that would mark a more extreme top. If the 92-96 index’s signal would be avoided, the decline would turn SKI bullish via the decline into the 16-20 index’s buy signal. USERX needed to decline on Wednesday (11/02/16) from 9.03 to below 8.91. The gold stocks rose during the morning of 11/02/16 and then reversed (on cue) to close lower, with USERX dropping to 8.86. The 92-96 index’s buy signal was avoided that day! But the gold stocks still needed to drop another 2% the next day (11/03/16) to avoid the 92-96 index’s XXed Out “buy” signal.

Unfortunately, USERX rose right back up to close at 9.02. The 92-96 index’s signal generated for a second shorting point. The index pattern yielded a 95+% historical probability of an almost immediate quick decline to sell the 92-96 index.

The gold stocks then immediately declined into such a 92-96 index sell signal on 11/09/16 and then plunged for two trading days into the 16-20 index’s buy signal that executed on 11/11/16 at USERX 7.27. And so, we obtained the expected plunge into the 16-20 index’s buy signal, but due to the 92-96 index’s buy-to-sell, that 16-20 index buy signal was now, unfortunately, XXed Out.

Such XXed Out 16-20 index buy signals actually have a 60% historical probability of marking a low despite the XXing Out. But in the other 40% of the time, the subsequent 20-30% plunge is so significant that SKI says, “The risk-reward isn’t worth buying, but that can be (60% probability) the  low”.

Conclusion

Jeff’s rare 10/30/16 rant, “imploring folks to SKI”, was perfectly timed because the important index signals were about to occur. You would have avoided this recent perfect plunge or made at least some money being short with Jeffski. You probably refrained from SKIing because you are used to most of the advertising/scamming/inaccurate analysts that you’ve “tried” before (as noted in the last SKI Report). The time has passed and Jeff no longer “implores” you to SKI/subscribe.

The XXed Out 16-20 index buy signal on 11/11/16 at USERX 7.27 HAS marked the exact low-to-date. The next technical point will occur in 3-5 trading days: If the gold stocks can hold the 11/11/16-11/14/16 lows, prices should rise (mildly) into another resistance 16-20 index in several weeks, and the XXing Out of the 16-20 index’s buy signal will have been incorrect (but still would have been historically judicious and risk-averse). And then, a decline would turn SKI/Jeff bullish. Alternatively, if the gold stocks decline below that low in 3-5 trading days from now, a further 20-30% decline should be in progress, bringing the gold stocks back near their January 2016 bottom. When this SKI bull market began in January, Jeff wrote how it was “special” and historically projected a 100+% USERX gain over 6-12 months and then a decline that gave back most (50+%) or all (95%) of the rise. USERX then rose 100+% (the more volatile HUI/GDX rose more, as usual), Jeff sold this Summer (6 months), and the decline has consumed more than 50% of the rise. Yes, if the 11/11/16 buy signal fails in the coming week, the gold stocks could easily decline another 20-30% to give back about 95% of the rise from January 2016. But if Jeff’s preferred scenario occurs, and the gold stocks can rise (mildly) for a few weeks into a 16-20 index resistance sell signal, a subsequent decline would turn SKI back to clearer bullishness for the first time in many months! This past Friday (11/18/16) was actually bullish as USERX ROSE and held above the index’s buy at USERX 7.27.

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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