 Special SKI Report #29
Gold Stock Status: SKI is Back
Jeffrey M. Kern, Ph.D.
Email: jeff@skigoldstocks.com
USERX
| historicals
Written Nov 25, 2007
Published Nov 26, 2007
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.
New Material:
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!
 SKI archives
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.
Copyright © 2002-2023 Jeffrey Kern. All Rights Reserved.
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