Special SKI Report #50
True Gold Stock Bull Approaching?

Jeffrey M. Kern, Ph.D.
Email: jeff@skigoldstocks.com
USERX | historicals
Written Feb 15, 2009
Published Feb 16, 2009

Current USERX price = 11.24, Up 6.5% 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 1/25/09, titled "The Gold Stock Rise Continues", I described how SKI continued to be bullish but that I (Jeff) would be selling when prices approached the major resistance at SKI's 92-96 index. That index was finally hit/touched/broken on this past week's rise. Jeff is in cash.

The 92-96 index is the most important SKI index. ALL bull markets since 1974 have been marked by a 92-96 index buy signal that is On the Path. "On the Path" is a little complicated and is explained on my website, but basically, a "path" is established based upon which of the 3 indices is in "control". The index that buys first is in control and On the Path. For example, if the 35-39 index generates a buy signal and then prices rise to the 92-96 index signal, the 35-39 index remains in control until it sells or a higher order index (i.e., the 92-96 index) sells.

After having been multi-year bearish on the gold stocks since May 2006 and again since selling gold in March 2008 at $1005, the pattern turned multi-year bullish on September 11, 2008. Yes, prices then instantly rose 25+% in two weeks and then collapsed in the final stage of the stock market crash of 2008, but the multi-year bullish pattern had been established and prices were predicted to rise to the 92-96 index and then, eventually, establish the true bull market via a 92-96 index buy signal that is On the Path.

The expected rise off of the October 2008 gold stock lows generated the 35-39 index buy signal on 12/15/08. Prices are currently UP about 17% since that buy signal using the broad mutual fund USERX as a gauge. Therefore, the "Path" has been on a 35-39 index buy signal and not on a 92-96 index true bull market buy signal. Prices do NOT "go the moon" when the SKI path is on such an intermediate-term (35-39 index) buy signal. Prices are supposed to, based upon the history of the past 35 years, rise to the 92-96 index resistance. That has now been accomplished!

There have been 23 such 35-39 index buy signals that have risen to the 92-96 index in the past 35 years. In 21 such cases, when prices reached the 92-96 index, the gold stocks have attained a top (a meaningful high). In the other two cases, prices remained flat to higher over another two months, but then prices still declined to well below the day that prices initially hit the 92-96 index. In other words, prices declined, usually immediately, but in 2 cases only after additional rises. THEREFORE, HISTORY SHOWS THAT THE RISK/REWARD NOW FAVORS THE DOWNSIDE (but remains multi-year bullish).

How does SKI obtain a true bull soon?

Prices need to decline to sell the 35-39 index and/or the 92-96 index. That will open the Path for the next index buy signal. If the Path opens and the next buy signal is the 92-96 index, SKI will obtain the "true bull market" signal. The 92-96 index is NOT a moving average. Its back prices, from 92-96 trading days earlier, can change rapidly each day. Those back prices are plunging from the 9/22/08 high of USERX 13.74 to the October 2008 low of 7.08 over the next few weeks. If prices can decline to "open the path" and then hold above the declining back prices (as per the mathematical SKI index), the 92-96 index buy signal, On the Path, can occur over the next month.

Conclusion:

It is time to get "excited" in anticipation of a possible decline to set up the "true SKI bull market" buy signal. Based upon the long-term bullish pattern from the Fall of 2008, we're supposed to obtain the 92-96 index buy signal (On the Path) at some time, but "long-term" means "many years", so there's no guarantee that the signal will be obtained until it actually occurs (brilliant sentence, Jeff; sarcasm). But even obtaining this opportunity is a rare situation: True SKI bulls come along only once every few years and have generated 50%-500% rises over long periods years of higher highs and higher lows. And yes, some true bull signals have failed via 3% - 6% fairly rapid stop losses.

I am writing for informational purposes and to try to provide you with some exposure to the indices' and patterns' reliability over years. I am also writing to suggest subscribing to my service because the SKI indices provide significant information regarding the long-term, intermediate-term, and short-term direction of the precious metals and gold stocks (that have been among the best performers since the October 2008 low).

IF prices do decline shortly, and then hold properly, the 92-96 index should mark the Price X Time point that signals a " SKI bull market" in the gold stocks (finally!). Prices may "play" with the 92-96 index for many days before actually generating the signal(s). Isn't this a unique (and weird?) "system"? I've been using it since 1985...

Best wishes, 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.

Copyright © 2002-2024 Jeffrey Kern. All Rights Reserved.

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