Current USERX price = 12.62, Down $3.29 since the report 3 weeks ago, but $2.54 of that decline was due to a dividend distribution on 12/09/11.
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 11/27/11, I described how I remained in cash after selling on 10/28/11 at USERX 17.20, that multiple index signals at that time could be marking some type of low (that I was not allowed to buy), that there was still a small chance for a true bull market if the market rose "correctly" that week, but that I/Jeff doubted it would occur. Furthermore, I tried to convey that SKI would probably have an easier time of marking a high on a rise than providing a true buy signal on any further decline.
Those oversold index signals actually executed on 11/25/11 and 11/28/11. The gold stocks "exploded" 5-8% higher on 11/30/11 while I remained in cash. The big bullish index opportunity was based upon computing the SKI indices on the HUI (as opposed to USERX that has been more closely correlated with GDXJ and the "rotten" smaller mining companies during 2011).
All that the HUI needed to do to provide a true bull market opportunity (predicting a 100+% rise) was to generate a new 92-96 index buy signal. The 92-96 index is the "master" index whose buy signal is required (yes, "required) for any true bull market. And that's not similar to just a simple rise to over some moving average. The index signal has to occur after a pattern of index signals. The indices on the HUI were set up in the proper pattern and a new 92-96 index signal during the week of 11/28/11 would have paralleled the biggest bull market of them all: The rare set-up that occurred in early 1979 that yielded a 500+% USERX rise in one year.
The 11/30/11 rise to HUI 584.77 went over all five of the 92-96 index's back prices that included 567.92, 577.12, 568.73, 573.30, and 571.60. But it always takes at least three trading days to generate any index signal, so it would take 2 more days to generate the HUI's 92-96 index potential bull market buy signal. The next day (12/01/11), the HUI closed at 584.68 and again remained over all of the index's back prices. SKI was within one day of generating the buy signal. The HUI simply needed to remain over 571.60 on 12/02/11. It failed, closing at 565.35. I feel like I'm writing a soap opera here, but such "drama" speaks to the validity and sensitivity of the indices.
The ensuing strong decline in the HUI and the even larger dividend-induced decline in USERX during the past week have once again generated multiple index signals. Market cycles have taken USERX and the HUI down to the long-term SKI indices (the 221, 442, and 663 indices). That USERX 221 index (whose buy signal is analogous to the regular system's 92-96 index) has been bearish for months, but last week's 10% decline reached the USERX 442 index and the HUI's 221 index. Those signals marked this past Wednesday (12/14/11) and tomorrow (12/19/11), respectively. Therefore, once again, the long-term systems on USERX and the HUI are on sell signals, but "some type of low" (that SKI cannot buy) is probably being marked here again (similar to the prior Special Report). The possibility of a low is enhanced by the USERX classic run pattern of 2 Up and 6 Down into this past Thursday (12/15/11) at USERX 12.45. That run pattern is questionable because it was caused by the USERX dividend. If the run down had occurred without a dividend-induced decline, the run pattern would be adamantly short-term SKI-bullish.
In conclusion, the mechanical SKI indices remain intermediate-term bearish and will continue to call resistances on rises, but a short-term low marked by multiple index signals is clearly feasible again. There's still one more long-term SKI index sitting below USERX's current price: The 663 index. The long-term cycles are making that 663 index look like a "magnet" that should get attracted to in the near future. The 663 index is the long-term system's equivalent of the 16-20 index because it buys on declines and sells on rises. Jeff's looking/hoping for a several-week rise soon to generate the short-term 16-20 index resistance signal. If prices then decline to new lows over an additional few weeks, mechanical SKI will generate a true buy signal (that usually comes within 1-2 trading days of hitting the exact low) and the 1-year corrective activity in the gold stocks and the 4-5 month decline in gold bullion would probably end (at least I'll be saying "Buy" if that occurs).
Warm Wishes for Happy Holidays, Jeff
P.S. My eldest son, Josh, is getting married in Dallas on 1/07/12 ("Grandpa" Jeff in a few years?; smile) and I'll be flying home on the day that the next Special Report is scheduled (1/08/12), so the next update will probably be delayed by one week until 1/15/12. I think that I can predict that with perfect accuracy!
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.