Current USERX price = 9.31, Up 18% since the last report 3 weeks ago (including a 7% dividend on 12/09/08)).
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 11/23/08, titled "Bullish Gold Stock SKI Technicals" (http://www.321gold.com/editorials/kern/kern112408.html), I tried to describe that the SKI run pattern continued to be multi-year bullish (after having been multi-year bearish since May 2006), that the indices had just indicated that the down-trend had ended, and that the short-term trend should be changing to bullish. The gold stocks have risen approximately 18% over the three weeks since that report.
What was missing from this bullishness was the intermediate term SKI index (the 35-39 index index). This Special report is focusing on this 35-39 index that just generated its index signal this past Friday (12/12/08).
The 35-39 index (that compares today's price to prices from 39, 38, 37, 36, and 35 trading days ago) is referred to as a transitional index. The term "transition" refers to the change from a bearish period to a bullish period. The 34 years of data that I have on the gold stocks (USERX) show that the next step in a bullish period is for the 35-39 index to generate its buy signal and for prices to rise to the next resistance, the 92-96 index. We've obtained the signal and now we'll see if the transitional rise ensues.
The signature for the development of bear markets is for the gold stocks to rise up to the 35-39 index and for that index to mark a high. The signature for bull markets is for the gold stocks to rise up to 35-39 index and then, after some consolidation, to continue to rise to the master 92-96 index. THEREFORE, WE ARE NOW AT THE NEXT CRITICAL POINT because the 35-39 index signal has occurred. Here's a nice chart, developed/used by a subscriber, which graphically represents the regular SKI indices, as well as the long-term 881-885 index (see how the previously described touch of that 881-885 index marked the 10/27/08 gold stock low?):
If prices now decline and sell the 35-39 index over the next few weeks (intermediate-term), that's the characteristic of a bear market. If prices continue to rise over the next 4-5 weeks, that will set up our opportunity for the final, and most important index, the master 92-96 index, to gain cyclical control for a true SKI yearly bull phase (that is "long-term", different from the "very long-term" bullish pattern that has already occurred at the September 2008 bottom).
We haven't had many of these transitional 35-39 index buy signals over the past three years. The history of the SKI index signals for the past 3 years (since the website opened) is chronicled on the website. Since we've actually been in a corrective or bear period since May 2006, the only such 35-39 index buy signal occurred on 7/09/07. I wasn't very excited at that signal because a small rise would reach the 92-96 index and we had already bought the short-term low on 6/27/07. Prices did rise to the 92-96 index but then failed as SKI sold. Prior to that 2007 buy signal, we had the 35-39 index buy signal that provided the transition to a true bull market on 6/10/05. Prices, at that time, did just gradually rise to the 92-96 index and then the true SKI bull market in August 2005 that lasted until May 2006.
The current 35-39 index signal "looks good" for several reasons. First, the 35-39 index back prices will remain low for more than a month and it will take a decline to below at least USERX X.XX (sorry, price withheld, but it changes each day) that holds over multiple days to generate a sell signal. THE 35-39 INDEX SELL SIGNAL IS THE CURRENT STOP LOSS. Second, the 16-20 index back prices will remain higher than the 35-39 index back prices going forward. Therefore, any decline will hit those 16-20 index back prices and that is support. Third, I've been expecting a transition because we had the very long-term (multi-year) bullish pattern at the September 2008 low. Rises after a correct 35-39 index buy signal are limited in terms of time and price. In the current situation, the limit is the 92-96 index.
Once again, 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 eventually 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 2.6 years from that high and the historic bottoming pattern has occurred.
Now SKI is expecting a transitional rise into a meaningful high as prices reach the next resistance level, the 92-96 index. If prices rise to hit that index, I will be temporarily selling and expecting a decline. If prices can rise over weeks into that 92-96 index, then decline over weeks, and finally hold at the correct level, the 92-96 index will re-buy and provide the start of the next true SKI bull market (larger than the last one in 2005-2006).
I've been sitting at loss for several months for the first time in my life, but the buy pattern was a multi-year call. Jeff's feeling better as prices are closing in on my purchase price and many gold stock indices (e.g., the HUI, GDX) have already risen back above the September 2008 lows. Now we're looking for the transitional rise via a New Year's "present" or SKI will sell and the pattern will be typical of a bear market.
My Very Best Wishes for the holidays and the New Year,
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.