Current USERX price = 20.23, Up 81 cents (4%) 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.
In the last gold stock SKI Report written on Sunday 10/31/10, I described how the gold stocks had declined, as expected, to generate the new SKI short-term index buy signals on 10/19/10 and 10/22/10, and that a short-term rise was therefore expected into the coming week’s U.S. Federal Reserve announcement. The problem for a continuation of the intermediate-term bullish case was two-fold. First, since those short-term indices had given buy signals, the expected rise would generate new sell signals. Second, the historical time period for intermediate-term rises during SKI bull markets was getting “long-in-the-tooth” and intermediate-term corrections during bull markets need to retrace back down to the 35-39 index. The decline during mid-October had only retraced down to that short-term 16-20 index (as opposed to the intermediate-term 35-39 index). If the gold stocks didn’t go down to the 35-39 index and just kept rising for another multi-month intermediate-term rise, history shows that the bull market ends (and that made little sense to me because everything that SKI has was long-term bullish).
What happened? The gold stocks did rise in the week after that last SKI Report and those short-term indices did generate their sell signals. The generation of those sell signals HAD to occur because they are purely mathematical computations. The 16-20 index (comparing the current price to prices from 16, 17, 18, 19, and 20 trading days earlier) executed its sell signal on 11/02/10 (the day before the U.S. Federal Reserve announcement) at USERX 19.45 (remember that date and price), and the rather amazing 663 index (comparing the current price to prices from 660, 661, 662, 663, and 664 trading days earlier) executed its sell signal on 11/04/10 (the day after the Fed announcement) at USERX 20.25. Both short-term indices sold at profits of 3.5% over 6 trading days and 7.3% over 11 trading days, respectively. That was rather “normal”.
Again, if those sell signals did not stop the intermediate-term rise and yield a correction down to the 35-39 index, a rather parabolic rise over the next couple months should end the bull market. Since everything SKI has is long-term bullish, I had to expect that those sell signals would “work” and I recommended that short-term folks should sell and that intermediate-term folks should also consider selling, looking for a decline back down to the 35-39 index.
What happened? The gold stocks kept rising for a few days! And on Monday 11/08/10, the gold stock mutual fund that I use as the dependent measure for the SKI indices, USERX, closed at a new century high of 21.02, exceeding the March 2008 high for the first time. Folks, one of the most frequent questions concerning SKI is why do I use USERX as a dependent measure and why don’t I correct the current USERX price for its dividends. The answer is that when I did the initial research in 1985, USERX was the oldest measure available, with data since 1974, and our research showed that adjusting the price for dividends simply destroyed the accuracy of the indices/cycles that we had discovered. I do not understand why USERX (which regularly changes its holdings, its fund managers, and its dividends) works this way, but while most other measures had exceeded their March 2008 highs previously, USERX did it on 11/08/10. And that was probably the intermediate-term high because it’s not unusual for USERX to make some new long-term high and then decline!
But hadn’t the gold stocks risen through those short-term index sell signals? Obviously, at least for a few days, but I cannot declare that the market has broken through the 16-20 index sell signal until “Half-Cycle” has expired. “Half-Cycle” refers to one-half of the time period in the 16-20 index, meaning 10 trading days.
I had to expect that the gold stocks would still decline back to USERX 19.45 (the 16-20 index sell price) by this past Tuesday (11/16/10; 10 trading days from 11/02/10). Last Monday (11/15/10), USERX closed at 20.25, so I had to send the one-day prediction that the gold stocks would close about 3% lower the next day. And that’s what happened! USERX closed at 19.47 that day, 2-pennies above the index sell price. Although the indices are specific to the penny, Half-Cycle theory has often missed by a few pennies and the rule is that USERX has to be clearly above the 16-20 index’s selling price in order to declare that the sell signal has been “broken through to the upside”.
And again, it’s that 663 index sell signal that also continues to cause intermediate-term bearish concerns. All of the rises during the past 2 years have been stopped by that index’s sell signals. But as I wrote 3 weeks ago, the sell signal on 11/04/10 is extremely likely to be its last sell signal for probably another 3+ years! That implies that we are finally completing the process that started at the death run top of May 2006: The long-term for the gold stocks will soon have significant upside potential as those long-term SKI indices will all be on buy signals and the resistance from those long-term cycles will be “gone”.
The gold stocks still have not overcome the resistance from the 16-20 and 663 indices’ sell signals. A decline back down to the 35-39 index continues to be expected and is needed (based upon history) in order to maintain the long-term bull market. The 11/04/10 663 index sell signal is likely to be the last one for years, but we are approaching the time when: (1) A decline can hit/touch the 663 index’s support without generating a buy signal (thereby avoiding a future sell signal!) because its back prices will have one high price of USERX XX.XX in XXX trading days, (2) A decline can generate a new 16-20 index buy signal simultaneously with obtaining the needed involvement of the 35-39 index in XXX trading days, and (3) A 92-96 index cycle low is simultaneously due in XXX trading days.
The above appears to be the perfect SKI set-up for a decline into an exact intermediate-term low and then a new 35-39 index buy signal should occur to confirm the beginning of what my wave count suggests will be the longest intermediate-term rise of the century (Wave 3 of Wave 3 of Great Wave 3; Great Wave 1 ended at the Death Run top run pattern of May 2006, as I wrote at that time, and Great Wave 3 was signaled by the Life Run low run pattern during the crash of 2008). Of-course, such a perfect possibility like this does not “have to” actually reach fruition, but we’re going to find out soon. I strongly dislike having to put those “XXX”s in the above paragraph and I hope that you understand why I have to do that.
I’m getting “excited” for the gold stocks. Until now, the gold stocks have been under-performing their historical norms relative to gold bullion. If the above set-up eventuates here, it’ll probably mean that the gold stocks will finally begin to out-perform to the upside.
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.