Special SKI Report #117
Gold Stock Armageddon

Jeffrey M. Kern, Ph.D.
Email: jeff@skigoldstocks.com
USERX | historicals
Written Feb 24, 2013
Published Feb 25, 2013

Current USERX price = 9.93, Down $1.25 (11.2%) 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

The last gold stock SKI Report, written on Sunday 2/03/13, described the likely beginning of gold stock “Armageddon” if the 80% historical probability of a decline below USERX 10.96 and $1626 gold occurred. The SKI indices had generated a highly bearish Double Sell index pattern on 1/23/13 and Jeff had sent the Sell Update. There still was the 20% historical probability that the XXed Out 16-20 index buy signal that generated on 1/28/13 would mark the intermediate-term low at USERX 10.96.

Subsequent to that SKI Report, the gold stocks went sideways for 8 trading days. SKI Half-Cycle Theory was applied. That cyclical theory states that if USERX’s price is above the 16-20 index’s buy-in price at 9-10 trading days after the index buy signal (that’s half of the 16-20 day cycle), the 16-20 index buy signal should yield a profit (bullish). And if USERX is below the buy-in price at 9-10 trading days after the index buy signal, the gold stocks should decline (“Armageddon”).

On the 9th trading day (2/11/13), the gold stocks and gold declined. USERX closed at 10.94, two cents below the 10.96 critical level. That was a very bearish day. “Armageddon” had been confirmed. The gold stocks then simply declined along with bullion.

USERX declined for 8 consecutive trading days into 2/20/13. The gold stocks (all measures) closed at new multi-year lows, below the May 2012 low of USERX 9.89. Gold declined for 5 consecutive days into 2/20/13 and fell into the very upper portion of its $1525-1550 multi-year support zone. Importantly, the USERX run down started after 2 days up. That formed the classic 2 Up and 5+ Down run pattern. When such runs down average 2+% per day, the run pattern constitutes a “Life Run” (multi-year) low (ala 1976, 1982, 1993, 1998, and 2008). This run down declined 12% over 8 trading days, averaging only 1.5%.

Conclusion

The decline over the past few weeks was predictable from the prior Report’s Double Sell index signals. I do have the historical norms (i.e., the % decline and duration) for declines from this kind of Double Sell index pattern. Although it may feel as if the gold stocks have experienced a significant decline, the decline into 2/20/13 only reached the MINIMUM downside targets. USERX did form a meaningful run pattern. Therefore, Jeff sent another Intra-Week Update to SKIers. USERX is below all of its indices and does not have detectible support, but the HUI fell to hit/touch its last support at the turquoise line (the 884 index; see here). These “Armageddon-declines” have yielded significant rises when they bottom and 2/20/13 may have been such a low, but if that low is taken out, a continuing decline would be expected.

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.

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