Special SKI Report #65
Another Gold Stock Critical Intermediate-Term Point

Jeffrey M. Kern, Ph.D.
Email: jeff@skigoldstocks.com
USERX | historicals
Written Jan 17, 2010
Published Jan 18, 2010

Current USERX price = 16.27, Up 4% since the last report 3 weeks ago.

Introduction (repeated from prior Reports):

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.

New Material:

In the last gold stock SKI Report written on Sunday 12/27/09, "Gold Stock Intermediate-term Bull Ending Soon?", I described how the gold stocks continued on an intermediate-term bullish 35-39 index buy signal that started on 8/26/09 and then had been reinvigorated via another 35-39 index buy signal on 11/05/09. The decline from the 12/02/09 top had also progressed in a classically SKI-bullish manner by dropping to touch the 35-39 index at the low on 12/08/09 and again at the closing low on 12/17/09, but that the buy signal remained in effect. The conclusion was that the gold stocks needed to “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”.

Subsequent to that report, the gold stocks rose for one day and then declined for 2 days to USERX 15.34. The decline into 12/30/09 once again touched the 35-39 index! That was supposed to be another little low marked by the index. Prices needed to rise by 2-3% on the first trading year of the New Year to avoid selling the 35-39 index and that’s what occurred (again). Therefore, during December, each of the three times that the market declined to touch the SKI index that mattered (the 35-39 index), a low occurred.

The rise continued until 1/11/10 at USERX 16.96 and gold bullion reaching $1151. The rise was sufficient to stay ahead of the rising prices from 35-39 trading days earlier (the 35-39 index back prices), so SKI remained intermediate-term (several months) bullish. But then, last week, the precious metals’ sector experienced another harsh sell-off on 1/12/10, rose for a day, and then declined even more into this past Friday (1/15/10) at USERX 16.27.

The 35-39 index back prices on Friday (1/15/10) were 16.12, 16.13, 16.05, 16.45, and 16.31. Therefore, the closing price of 16.27 touched/hit that all-important 35-39 index once again without generating a sell signal. Friday marked the 4th time that a market decline had touched the index since the 12/02/09 high! That actually wasn’t surprising to me because it is common for the market to test support multiple times by touching an index without actually generating a sell signal. I’ve seen this so many times in the past 25 years that I’ve come to expect it and view it as continuing confirmation of the indices’ validity. The prior 3 touches had, as expected, marked the low of each wave down. Will the fourth touch (this past Friday) continue that bullish pattern?

The indices allow me to apply some Elliott wave analysis to the gold stocks’ movements because the indices mark the critical points. That’s why, in the last report, I described the December 2009 decline as being an ABC corrective decline (not a bear market), with the A-wave down bottoming on the first touch of the 35-39 index and the C-wave decline bottoming on the second touch of the 35-39 index. That WAS correct. The rise to 12/28/09 was the first wave up (A or 1), the 2-day decline to the third touch of the index was a wave 2 (or B) down and the rise to 1/11/10 was the 3rd wave up (possibly C?). That also WAS correct.

Now, the issue is whether the rise into 1/11/10 was simply an ABC corrective rise from the December decline that portends a continuing decline now. If so, then prices should decline this coming week and sell the 35-39 index for a bearish Double Sell SKI index pattern that portends a continuing intermediate-term decline. Alternatively, if the rise from the December 2009 low is a continuation of the bullish case, then this fourth touch of the index on 1/15/10 should mark another low and prices will rise this coming week. If so, the 35-39 index will not sell, USERX will rise to challenge or exceed the 12/02/09 high (as per the requirement stated in the last Report) and my continuing long position will be rewarded.

AS PER THE LAST REPORT, THE RISE NEEDS TO CONTINUE INTO THE END OF JANUARY, OR THE 35-39 INDEX WILL SELL AS ITS BACK PRICES RISE TO THE DECEMBER 2009 HIGHS.

Conclusion:

This past Friday marked the 4th time since the 12/02/09 high that the market has declined to test support via a touch of the 35-39 index. If prices decline this coming week, SKI sells and takes its profit on an intermediate-term basis (but the many-year trend turned up on 9/11/08 via a life run low after turning bearish in May 2006, and the multi-year trend turned bullish on 8/18/09 via a long-term 221 index buy signal after turning bearish on 7/29/08). However, a rise of at least short-term duration is now expected due to that 4th touch of the 35-39 index.

Three weeks ago I wrote the rare advertising statement that it was a good time to subscribe and follow that 35-39 index. That was correct and I continue that apparently self-serving recommendation because even if prices do rise after the 3-day Martin Luther King holiday weekend, the critical period has not ended. The 35-39 index back prices peak in 7 trading days. That “just happens” (meek smile) to coincide with the next U.S. Federal Reserve announcement. If this rise doesn’t fail early this coming week, the rise may fail at that time and sell the 35-39 index for an intermediate-term bearish signal. If it sells, the projection is an approximate 15-20% decline. In fact, even if the 35-39 index does not sell, a rise now should still end a 5-wave advance from the December 2009 low and will be marked by another longer-term SKI index signal within one day of the next high.

To repeat, mechanical SKI will take its profit and sell on a continuing decline this week (not a decline just on Tuesday 1/19/10) and will also sell if prices do not rise enough over the next 7 trading days to avoid the 35-39 index sell signal. I have publicly disclosed the simple math used to calculate the indices, so you can do the math yourself, but the next 7 days are critical on an intermediate-term (several month) basis. I am looking for another rise that fails to avoid the sell signal. If SKI sells, a harsh intermediate-term decline should begin.

Best wishes again for happiness, health, and prosperity in this New Year, Jeff

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.

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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.

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