Current USERX price = 19.71, Up $1.05 (5%) including the 12/10/10 $1.57 dividend since the 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 11/21/10, I described how the gold stocks had risen from a 16-20 index short-term buy signal but still needed to decline to the 35-39 index in order to maintain the long-term integrity of the bull market. Historically, if the market does not decline down to the 35-39 index during an intermediate-term correction within a bull market, the ensuing intermediate-term (several month) rise has been “terminal” for an extended time period (i.e., prices decline significantly and sell the 92-96 index to end the bull market). Since everything that SKI provides is long-term bullish since the crash of 2008, I’ve been having to expect that the gold stocks would decline to the 35-39 index in order to set up the next large intermediate-term leg higher.
Sine the last report 3 weeks ago, the gold stocks rose for one day and then declined into 11/29/10. That small decline was sufficient to hit/touch that 16-20 index short-term support on 11/29/10 but wasn’t nearly sufficient to go down to the prices from 35, 36, 37, 38, or 39 trading days earlier (the 35-39 index). And then the gold stocks and gold bullion rose strongly to another new century high at USERX 22.11 and $1415.30, respectively, on a closing basis. That rise formed a classic 2 Down and 5 Up run pattern (i.e., 2 days down into 11/29/10 and then 5 consecutive daily rises into 12/06/10, including 5 consecutive daily rises in gold bullion). Such run patterns mark highs at a very high probability, but during bull markets, the highs are only short-term (i.e., a couple of weeks).
Last Tuesday (12/07/10) evidenced that short-term high as the precious metals sector opened much higher and then sold off to form a “key reversal down” day. And this past Friday (12/10/10) was the day that the mutual fund, USERX, was going to declare a large dividend that would cause its closing price to decline. Therefore, the bullish hope was that a gold stock decline plus the dividend-induced decline would be sufficient to bring USERX down to the 35-39 index. If you review the last SKI Report for 321gold, I discussed why we do not correct the USERX price or the SKI indices for dividends.
This past Friday’s (12/10/10) USERX dividend-induced price decline was sufficient to hit/touch the 16-20 index’s short-term support, but it was not quite enough of a decline to hit/touch the 35-39 index: The 35-39 index was at 19.55, 19.45, 18.53, 18.87, and 18.40 on Friday, so the close at USERX 19.71 did not go down to the 35-39 index.
The 35-39 index USERX back prices for this coming week are:
Monday (12/13/10): 19.45, 18.53, 18.87, 18.40, 18.51
Therefore, a further decline is needed this coming week to sell the 35-39 index. If that happens, it has historically marked an intermediate-term low and then a new 35-39 index buy signal marks the next very large intermediate-term (several month) rise in the gold stocks.
If prices do not decline sufficiently this coming week, the needed decline could still occur the following week. Friday (12/10/10) appeared to be a rather bullish day for the gold stocks and the hit/touch of the 16-20 index support “can” (not “will”) yield a rise this coming week. But such a rise and a failure to decline thereafter into the 35-39 index would historically mean that the gold stocks’ (and gold’s/silver’s) next explosive intermediate-term rise will yield a rather disastrous (bearish) outcome.
The bull market, ala the SKI indices, continues. One way or another there should/will be another large intermediate-term rise coming. However, the history of the SKI indices on the gold stocks since 1974 indicates that if prices do not correct down to the 35-39 index, the next intermediate-term rise will be a major top. This time “could be different”, but that idea typically yields significant losses to one’s account. Since everything continues to be long-term bullish, I am still expecting a decline into the 35-39 index in order to preserve the multi-year bull market. A hard and fast decline this coming week would “do the trick”, but this past Friday (12/10/10) provided short-term bullish implications. If prices rise this coming week after having touched index support this past Friday, a decline into an important intermediate-term low could still occur in the following week. But if the gold stocks do not decline enough soon, you’ll be reading from SKI that a major top will be occurring after a few months of a large rise. This is a rather “immutable rule” akin to the rule that called May 2006 a multi-year gold stock high and the crash in 2008 as a long-term low. If you are bullish, as SKI and Jeff are, hope for a decline soon into the intermediate-term buy so as to preserve the longer-term bull market. But for the next few months, whether the gold stocks do or do not decline to the 35-39 index, SKI and Jeff remain bullish.
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.