Current USERX price = 8.54, Up 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 on 11/02/08, titled "Gold Stock Crash: Is There Any Hope?" (http://www.321gold.com/editorials/kern/kern110308.html), I tried to describe a variety of technical factors that were long-term bullish from SKI's historical perspective. These included:
Following that report, the volatile gold stocks rose 12% over two days, hit the short-term SKI indices, and began to gradually decline again. Those indices have proven to be resistance levels since mid-July 2008: Each time prices have risen up to the 16-20 index, prices have started a new leg down. Therefore, the daily and weekly SKI reports were short-term bearish for several weeks despite the long-term bullish pattern.
However, the behavior of the gold stocks began to change during the past two weeks. Instead of simply plunging after hitting the short-term indices' resistance, the declines were shallower and prices kept popping up to continue to hit index resistance. In other words, it appeared that the market was setting up to actually generate short-term index signals.
The short-term index signals occurred last week, on Wednesday (11/19/08) and on Thursday (11/20/08). I am not going to tell you that SKI clearly called those days as a low because there were still two possibilities: (1) Prices could have continued down for another 1-2 trading days before bottoming at true buy signals or (2) Prices would explode by at least 15% to jump over the indices' resistance. The latter possibility looked to be "impossible" because USERX's largest single day rises since 1974 have included only one 20% rise and multiple 10-12% rises.
Do you realize that Friday's (11/21/08) rise was the second largest one-day rise in history? You may be thinking that large and fast rises are characteristic of bear markets and that the gold stocks (USERX) have had one-day rises of by 8-10% several times during the great decline from mid-July 2008. However, Friday's rise over several short-term indices' resistance levels suggests that the short-term trend is now joining the very bullish long-term trend.
You are not reading an article that is being written by someone who is continuously bullish on the gold stocks and gold bullion. Since the special "historic top" pattern completed in May 2006, I've taken plenty of "heat" for predicting that the gold stocks would decline below their 2006 and 2007 lows before a multi-year decline would end and that such a bottom has always taken more than two years, from the top, to complete. We are now 2.5 years from that high and the historic bottoming pattern occurred at the low in September 2008. I was particularly criticized for maintaining a long-term bearish view and a cash position when the gold stocks rose to new highs in the Fall of 2007. Sure, SKI then caught almost every multi-week rise in 2008, but it sold rather quickly and I eventually went short in mid-July 2008.
My current perception is that many people are now vowing to forsake the gold stocks for other areas of the stock market or have decided to "never deal with any market again". THIS IS NOT THE TIME FOR SUCH BEARISHNESS.
I bought that September low and am not happy to say that, for the first time in my investment life, I am still sitting at a significant loss over several months (there have certainly been plenty of losses over the years, but I've always sold quickly at a small loss). Why haven't I sold and cut the loss like I've always done before? Either I am a turkey and the world is going to be "different this time" or this is supposed to be a once-in-a-decade bullish opportunity that I do not want to miss. It may be difficult to believe that this is a rare buying opportunity because the gold stocks have, as a group, declined 75% from their highs. Isn't that a great bear market?
Here are the historic data on the declines from death run tops (e.g., May 2006) to life run lows. At the life run low in 1976, prices had declined 74% over 2.5 years before rising 1000% over 4 years. In 1982, prices had declined 75% over 2.1 years from the death run high before rising 333% over about 2 years. In 1993, prices had declined 73% over about 8 years before rising a "paltry" 60% (note the length of the bearish period, the "gradual" decline). In 1998, prices had declined about 85% over 2.5 years before rising into May 2006.
The point is: THIS IS NOT THE TIME TO BE FORSAKING THE GOLD STOCKS. I actually expect that the gold stocks will outperform just about everything to the upside over the next few years. I obviously would like to have you become a SKIer with me, but you don't need to subscribe at this time if you are a very long-term buy-and-holder. You should have sold with me many times over the past 2.5 years and that time WILL come again. But that should be in some years from now when the gold stocks are ready to start their next 75% decline as SKI turns long-term bearish once again.
My Very Best Wishes during this most difficult period,
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. 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.