Current USERX price = 15.64, Down 3.8% 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.
In the last gold stock SKI Report written on Sunday 12/06/09, with the drab title “Short-term Gold Stock Update”, I concluded that the SKI indices did not require any particular price action, that traditional technical indicators suggested some further downside, and that unless prices “crashed”, a decline wouldn’t really affect SKI’s intermediate-term bullishness. The 35-39 index had essentially been on an intermediate-term 35-39 index buy signal since 8/26/09 except for a bullish quick sell and re-buy in early November. That new 35-39 index buy signal had been profitable 18 out of 18 times in the past 35 years. It bought at USERX 15.15 on 11/05/09.
Since that last Special Report 3 weeks ago, the precious metals sector declined, with gold falling approximately $83 and the gold stocks falling about 7.3% into their recent lows on 12/22/09. Although it may have felt like a “crash” to some folks, the only thing that matters is whether prices declined enough to sell the 35-39 index that had bought on 11/05/09. Such a sell signal would have ended the intermediate-term bullishness.
In the 2 days after I’d written that last Special Report, there was a strong decline. USERX, the gold stock mutual fund, declined from 16.25 to 15.40. That price of 15.40 was low enough to touch the 35-39 index’s back prices (i.e., the prices from 39, 38, 37, 36, and 35 trading days earlier) which were 15.47, 15.60, 15.27, 15.34, and 15.49. If prices had declined for any further, the 35-39 index would have sold and might have even sold at a loss for the first time in 35 years. It wasn’t supposed to sell and the market immediately rebounded. The 35-39 index did not generate a sell signal.
The rebound continued for 6 trading days and USERX rose to 15.81 into 12/16/09, but the precious metals sector then fell sharply (more than 5%) during the next day, with USERX declining to 15.00. Did that decline fall below the 35-39 index’s back prices? The back prices change each day and during this period, those back prices were actually declining. If you go back 35-39 trading days from that 12/17/09 plunge, you’ll see that the 35-39 index’s back prices were 15.08, 15.10, 14.66, 14.59, and 14.03 (the low from 10/28/09). Therefore, the current price of 15.00 was below just 2 of the 35-39 index’s 5 back prices. The gold stocks had declined to touch the index again but did not generate a sell signal!
In fact, during those declines, the short-term indices generated a buy signal on 12/11/09 when USERX had declined to 15.50, executed a sell signal on 12/16/09 at USERX 15.81, and generated another buy signal when USERX plunged to 15.00 on 12/17/09.
The decline from the 12/02/09 high did not sell the intermediate-term bullish 35-39 index buy signal from 11/05/09. In fact, the decline simply touched that index on 12/08/09 and 12/17/09. If you can remember back to the 2005-2006 true SKI bull market, one of the characteristics of a bullish period is that the declines in the gold stocks carry down to touch the 35-39 index without generating a sell signal. This December’s decline acted in that bullish manner, with each touch of the 35-39 index marking a low. The index appears to have marked the lows of a classic A-B-C correction (A = Down, B = Up, C = Down).
That correction should therefore be complete. It appears to have completed, on an intra-day basis (and on a closing basis for gold bullion), exactly when the 35-39 index back prices bottomed on 12/22/09 and I sent a Buy Update to subscribers. That apparent low was one intermediate-term cycle (38 trading days) from the low on 10/28/09!
But now the 35-39 index’s back prices are rising from the 10/28/09 low. The gold stocks need to rise to stay ahead of those rising 35-39 index back prices. This is a classic SKI index situation. For example, in March 2008, the gold stocks were rising while SKI was on the most important index’s buy signal, a 92-96 index buy. The 92-96 index’s back prices were rising and then, when the gold stocks declined for a day, USERX fell below the 92-96 index’s back prices to mark the major top and I sold gold bullion at $1005 on 3/18/08.
In the current situation, prices must continue to rise in a prescribed and definitive manner to avoid falling below the rising 35-39 index’s back prices. I can state rather definitively that the gold stocks must rise to new highs over the next 3-4 weeks or the 35-39 index will sell to mark the end of the intermediate rise from August 2009. That should not be a major high ala March 2008 (because that high was marked by the long-term powerful 92-96 index sell signal), but it would be quite significant. I do not know if the precious metals’ rise will fail or not, but a 35-39 index sell signal will be bearish if it occurs, and such a sell signal could occur as early as the first week of the New Year or as late as the end of January. I rarely include this type of advertising statement, but this should be a very worthwhile time to follow the progress of the 35-39 index via a subscription.
Best wishes for happiness, health, and prosperity in the New Year, Jeff
P.S. This report marks the end of my 10th year of public predictions using the SKI indices, starting in January 2000! Thanks to all for reading them!
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.