Current USERX price = 19.19, Down (finally) 6% 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 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.
In the last SKI Report on 11/04/07, I described how "gold had left SKI in the snow" as I had missed the opportunity to make a large amount of money during the rise off of the August 2007 low. The question, at that time, was what to do for those of us who believe in the very long-term bull market in the precious metals but who were sitting in depreciating U.S. dollars during the large rise. The suggestion was to wait for the "eventual pullback" back down to the SKI indices in order to manage risk. An old saying is that novices focus on profits and professionals focus on risk. Another old adage is that "markets always correct" and history does demonstrate the gold stocks have always returned back down the SKI indices (of-course the issue is how far they rise before that eventual pullback).
Patience and risk management DID prevail, as the three weeks following that lamenting last Special Report witnessed a 10+% decline in the gold stocks. The first level of support was hit 5-6 trading days ago (11/16/07-11/19/07) as the short-term SKI indices generated their buy signals. That was actually the "easy" part. That "hard" part involves calling the appropriate entry point. The gold stocks have risen since those index signals and the question has become, "Has the next major leg up off of the August 2007 low begun?". A decline back to the indices ALWAYS occurs, but the important timing call for new purchases occurs as that decline progresses. So we reached initial support (that also coincided with the major gold indices testing their breakout point (e.g., HUI at approximately 400) over the May 2006 major high. That was a classic retest of the breakout point, but was that the entry point? Once again, you may read the above and think, "Who cares? Just buy and hold during a long-term bull market", but I have witnessed countless examples of large losses resulting from that strategy.
I did not buy those first buy signals due to continued risk management. But I am pleased to report (and feeling better!) that since prices reverted back to the SKI indices, I now have entry/buy points (as well as potential shorting points) over the next several weeks. The mathematical indices are set up for additional signals within the next 11 trading days. I see that 11 trading days from today coincides with the day before the next Federal Reserve announcement, so the indices appear to be ready to capture the next gold stock move. If you want to read someone who is clearly bullish here, don't read SKI, as I continue to be skeptical regarding the rise from the August 2007 lows, but I do have the index signals defined over these next 11 trading days and will act in a disciplined manner (hopefully!) despite my continuing reservations regarding this last multi-month surge higher.
I expressed my dismay and consternation to my colleague this past week over the fact that SKI has only had one true buy signal this year (the 16-20 buy signal on 6/27/07 at USERX 14.72 that sold via a 16-20 index sell signal on 7/09/07 at USERX 15.87) and that there's only five weeks left in 2007. That means that SKI has only made 7.8% plus about 4.5% interest during 2007. And look at the volatility and opportunities that were missed; why hasn't SKI captured at least a 30% gain? He was kind enough to provide me with a little pep talk. First, he ran/updated the SKI program (providing all of the true, on the Path and non-XXed Out, buys and sells; no shorting) from the beginning in mid-1974 to this past week. Then he mailed that to me and called. He basically said, "Look, SKI has continued to average a little over 20% a year over the past 33 years that included many years of bear markets. And don't forget that over those 33 years, the dependent measure, USERX, has declined from its inception at 48.40 to the current price of 19.19. Somehow, SKI manages risk to avoid large losses. The past couple of years were well above that average, so 2007 is reverting back to the average. 2004 wasn't particularly great either. The true SKI path needs to generate new signals. It'll happen, we just don't know when".
My reaction wasn't completely positive. If this is currently a true bull market, sure, I can soon find an entry point with manageable risk, but it's very difficult to remain tranquil while the gold stocks surge and I sit in cash. Prices are currently "only" about 12% higher than the May 2006 highs, but after gold prices have risen $45 in the last three trading days of this past week, it's most difficult to remain patient and disciplined.
As you can tell, I am worried about "missing". It's a dangerous worry that usually occurs immediately after one has missed a large rise. The tendency is to want to buy on a pullback in prices in order to avoid missing the next large rise. Usually, if I do it without the appropriate index signal, I buy too early and prices decline after I buy. Then I am exposed to an inappropriately large risk due to a break in discipline. I need to wait to see if the bullish scenarios (index signals) occur before I buy. Maybe it'll all work out in a clear manner: Prices will decline to a 35-39 index sell signal. That IS what's supposed to happen. Then, only two important things can happen: I can buy a new 35-39 index buy signal or the 92-96 index will sell and confirm that this rise from August was an immense fake-out.
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, less distraught, preparing to act, Jeffski
P.S. The SKI is back in Jeff because the indices are back in play!