 Special SKI Report #31
Gold Stock Explosion
Jeffrey M. Kern, Ph.D.
Email: jeff@skigoldstocks.com
USERX
| historicals
Written Jan 5, 2008
Published Jan 7, 2008
Current USERX price = 17.15,
Down another 3.5% since the last report 3 weeks ago due to a
large dividend. Adding back the $2.43 dividend yields a large
rise of 10.5% over the past three weeks.
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 the most informative gold site, 321gold,
since its inception approximately six years ago. 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 32 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 at http://www.skigoldstocks.com/about.php.
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.
New Material:
In the last gold
stock SKI Report on 12/15/07, I described how the gold stocks
had declined into SKI index signals. Prices had fallen into
the first line of support, the short-term 16-20 index, and then
had fallen into the second support point, the 35-39 index. I
concluded by writing that "The decline at the end of the
week (12/14/07) was rather bearish as prices appear to have been
firmly rejected from the index resistance and actually fell below
the earlier index support signals".
On the following Monday (12/17/07),
the gold stocks declined another 4%. Prices had fallen below
the 35-39 index support. The next downside target was therefore
the final SKI index, the 92-96 index. The 92-96 index had bought
on 9/11/07 at USERX 16.15. That index buy signal is required
for all bull markets. If the gold stocks were in a bull market,
the 92-96 index had to remain on its buy signal. Since prices
had just broken through to the downside on Monday (12/17/07),
prices were supposed to continue to fall into the 92-96 index.
Was the 92-96 index going to sell?
And then one of those "strange
market events" occurred.
USERX, the mutual fund that has a history of paying small dividends
and has been rated by Lipper as being the best precious metals
mutual fund for tax efficiency (http://www.usfunds.com/docs/qfp/3q2007/3q_2007_USERX_QFP.pdf),
declared an enormous dividend of $2.43 on 12/20/07. That dividend
caused the price of USERX to plunge down to 14.75.
I often write how the SKI
indices somehow reflect and capture "nature". The
"artificial", dividend-induced decline, caused USERX
to hit the final index, the 92-96 index. It was supposed to fall into that index, but
who would have thought that a rare dividend would fulfill that
requirement?
So the final level of Price
X Time support was hit on 12/20/07. If the precious metals were
in a bull market, prices needed to hold and rise immediately
to prevent the 92-96 index from selling. The next day, 12/21/07,
prices rebounded up strongly, back over the 92-96 index back
prices. We know what's happened since then, as the gold stocks
have rebounded back up to near the highs of this decade in just
nine trading days from the touch of the 92-96 index (a rise of
14%).
I can't offer an explanation
as to why the indices work in this manner or how nature could
somehow influence USERX to provide an extremely unusual dividend
on the exact day the gold stocks hit their low. SKI is simply
empirical and this is the type of market behavior that has been
recurring for the past 35 years, but I have never seen a dividend
fulfill an index requirement like this dividend did. In fact,
logic would dictate that when a mutual fund (or a stock) provides
a dividend, that the dividend should be added back into the price.
If you look at charts of USERX, you'll see that the charting
services have corrected all of the historical prices for the
dividend. The highest USERX price occurred on 11/06/07 at 20.84.
I kept writing that prices were going to decline. USERX fell
from 20.84 to 14.75 in just six weeks. But if you now look at
a chart of USERX (http://stockcharts.com/h-sc/ui?s=USERX&p=D&b=5&g=0&id=p00184796783)
you'll see that the high price is listed at 17.90. If you add
$2.43 to 17.90, that doesn't equal the true high price of 20.84,
demonstrating once again how charting services make several important
errors each year! I am the keeper of accurate prices! But the
empirical point is that the SKI indices were discovered using
THE price, whether it is affected by dividends or other factors.
In the 1970s, USERX regularly gave three 5+% dividend payments
each year. Yet the indices worked and we didn't add back the
dividend into the price when calculating the indices. Folks,
I cannot explain this in a logical manner. In 1985, during the
development of the SKI indices, we researched whether adding
back the dividends would improve the indices. The answer was
clearly "No". The price is the price...
In any case, we've just witnessed
prices falling into final support on 12/20/07 due to that dividend,
marking the low to the day, and prices have skyrocketed. The
rise since 12/20/07 has occurred despite weakness in the general
stock market. This past week was the first time in at least
a year that the gold stocks were able to rise despite weakness
in the general stock market. Gold stock investors must finally
be pleased!
I noticed that the television
financial news programs have been touting gold as an investment
this past week as gold bullion closed at new historic nominal
highs and the U.S. financial situation continues to deteriorate.
That's usually a contrary indicator. USERX has also risen enough
to generate new SKI signals that were executed on Thursday (1/03/08).
PRICES HAVE QUICKLY REACHED INITIAL RESISTANCE. A further price
rise strongly suggests that another impulsive leg higher, as
per the August November 2007 wave higher, is underway.
We'll see. I continue to project
that prices will eventually decline into the second major SKI
buy signal of this decade, but another leg higher may have started
off of that 12/20/07 touch of the major 92-96 index. The next
critical point is likely to occur in 18 trading days.
2008 started off with a bang
for precious metals investors! The first day after Labor Day
and the first day of each New Year usually predict the trend
for the next few months!
If you are interested in following
and learning more about the SKI indices, I'll write another Report
for 321gold 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.
Best wishes for the new year,
Jeff
 SKI archives
email: jeff@skigoldstocks.com
Jeffrey M. Kern,Ph.D., is an academic psychologist with a specialty in the measurement and prediction of human behavior. The communications provided are for informational purposes only and are not intended to be investment advice or recommendations for specific investment decisions. Dr. Kern is not a registered investment advisor, but is registered as a commodity trading advisor (CTA). The information provided is considered accurate, but cannot be guaranteed. Investments/trading in narrow market segments or gold futures is for individuals willing to accept a higher level of risk for the opportunity of greater returns. Past performance is no guarantee of future performance. His website is www.skigoldstocks.com.
Communications should be sent to: jeff@skigoldstocks.com.
Copyright © 2002-2024 Jeffrey Kern. All Rights Reserved.
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