Current USERX price = 11.46, Down another 63 cents (5%) 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 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.
The last gold stock SKI Report, written on Sunday 12/02/12, addressed whether the decline in the gold stocks had killed the infant gold stock bull market that had potentially initiated via 92-96 index buy signals on 9/05/12-9/06/12. Two bull market rules (based upon the behavior of all prior bull markets) HAD been broken, but the primary rule (remaining on a 92-96 index buy signal) had not been broken. Therefore, the infant bull market was still alive and a run pattern of 2 Up and 5 Down was suggesting that another low was approaching.
Since that Report, the gold stocks declined for another 3 trading days to form a classic 2 Up and 8 Down run pattern into 12/05/12 at USERX 11.64. The run down was very weak, averaging only a .8% decline per day. That tied the weakest such run patterns since 1974. The history of such run patterns, provided to SKIers, was:
That run pattern yielded the minimum historical rise of 5 trading days into the high on USERX 12/12/12 at USERX 12.13. The rise hit/touched the 16-20 index resistance for the fifth time since the 9/21/12 high in the gold stocks, but did not get over that index. And so the intermediate-term downtrend from that 9/21/12 high was continuing.
Did you notice the market’s behavior this past Monday (12/17/12)? Gold rose $1.20, the general stock market rose, and the major gold stock indices (HUI/GDX) closed slightly higher. But USERX (and many broad-based mutual funds) closed solidly lower. Here’s Jeff’s concluding comment from the daily SKI Message on 12/17/12: “Seasonal festivities suggest cheerfulness, but today ranked in the top 5 "nausea" (feeling impending doom) days of the year for Jeff” because that was a significant negative divergence (a surprise decline in USERX coupled with a rise in everything else). Although I’ve read multiple articles citing “market manipulation” for gold’s $35 decline on the next day, the only surprisingly market behavior was that such selling didn’t occur immediately during overnight Asian/European trading.
And then, on Friday (12/21/12), gold rose $14.20, but USERX closed UNCHANGED. Such unchanged days count as a continuation of the run pattern. In this case, it was the 5th consecutive daily decline in USERX. Such runs down usually (90%) stop at 5 or 6 days down. Friday’s negative divergence (gold up and the gold stocks down) suggests a decline on Monday (12/24/12).
The important issue is whether the 92-96 index will actually generate a sell signal on this decline. The HUI’s 92-96 index was hit/touched on 11/15/12 to mark “some type of low” and the index did not sell. This past Thursday’s (12/20/12) INTRA-DAY decline of 2.5% hit/touched the 92-96 index but then the market rebounded. That behavior was consistent with the infant bull remaining alive and the 92-96 index is providing support.
Look back 92-96 trading days. USERX’s back prices from then are rising and are at 11.27 while the HUI’s 92-96 index back prices are right here at 426.28. The indices take several days to generate a signal. A decline on Monday won’t be surprising because of Friday’s negative divergence (see above). Such a 6th day decline won’t sell the 92-96 index, but the gold stocks MUST bottom now or on Monday to avert the “death of the infant bull market”. And then the rise must continue for months in order to avoid a 92-96 index sell signal. Let’s see what type of rise follows this run down: A rise into a confluence of indices in X trading days (“X” = reserved for SKIers), followed by a brief decline to sell the 92-96 index would suggest significant bearishness.
Happy Holidays and Best Wishes for the New Year (despite the rotten gold stocks that may be forming QUITE the intermediate-term low), Jeffski
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.