Special SKI Report #54
Strange Gold Stock Behavior

Jeffrey M. Kern, Ph.D.
Email: jeff@skigoldstocks.com
USERX | historicals
Written May 24, 2009
Published May 25, 2009

Current USERX price = 13.23, Up 18% since the last report 4 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 4/26/09, titled “Gold Stock Trends”, I attempted to describe some unusual technical behavior based upon the SKI indices. The system had executed a 16-20 index buy signal on the day of the low (4/17/09) that was too dangerous to be bought and that buy signal had been quickly followed by a 35-39 index buy signal for a Double Buy pattern. The “unusualness” of the technical behavior was due to the fact that there had been a 95% historical probability that the buy signal on 4/17/09 would not make money, but prices had still risen to generate the bullish “Double Buy” pattern. Therefore, that Report predicted a further rise into another short-term index (16-20) sell signal and that such a sell signal was likely to halt the intermediate-term price rise. If you can follow the above sentences, you must have been reading these Reports for a while!

I usually write these public Reports every 3 weeks. I used to write weekly Reports on the Kitco and 321gold websites from 2000 to 2006, but the frequency of the public Reports was reduced when a subscriber website started in early 2006. I’ve been gold stock timing since 1985, but when a long-term bottom appeared to be forming in 1998-2000, I decided that it was time to go public because interest in a sector increases during bull markets. I decided to begin a subscription service in August 2005 because SKI had generated a true bull market index signal and I thought that “it would an easy time” because prices would just rise and provide some pleasure to SKI readers. That was largely the case until May 2006 when the pattern became multi-year bearish until September 11, 2008. In any case, the frequency of the public Reports was reduced to once every three weeks when the website opened in 2006. This current Report was delayed a week because I was expecting that this past week would be a “Do or Die” (i.e., meaningful directional movement!) week for the gold stocks.

This entire situation is about as complex as SKI can get because it involves so many unusual index patterns. Can you follow (or do [you] even want to devote the time/effort to try? Smile) the description of what has happened in the last month and where we are with these volatile gold stocks and metals (as a group)?

Since that 4/26/09 Report, the gold stocks went sideways for a week and then popped up during the week of 5/04-5/08/09 into that next 16-20 index short-term sell signal that usually stops the advance. That index had previously “recommended” selling on 3/23/09 at USERX 11.77. The question was whether this recent sell signal would mark another topping area.

There is a time period rule associated with such 16-20 index signals that is referred to as “half-cycle” theory. The half-cycle is used to help determine whether the market will continue the price movement through the index signal. Large price movements occur when the 16-20 index fails to change the market’s direction. Half-cycle theory postulates that if prices are higher than the index sell signal after the half-cycle time period expires, the market has broken through the index signal. In this case, that time period expired on Monday, 5/18/09.

Conclusion:

Friday (5/15/09) was an important technical day for the gold stocks when they declined to hit/touch/break the 35-39 index by one penny (USERX = 11.94, as compared to the prices from 35-39 trading days earlier (11.66, 11.77, 11.59, 11.90, and 11.95). If prices had declined on Monday (5/18/09), the 35-39 index was about to sell for another bearish Double Sell pattern, but when USERX closed higher on Monday (even as gold bullion fell rather sharply), the technical picture was resolved in the short-term to the bullish side: The 35-39 index had held and the half-cycle period (see above) had expired. And the gold stocks rose 11% week-over-week into this 3-day weekend.

SKI and I have been in cash during this rise earning a whooping 1% interest (except for some physical gold). Will the gold stocks stop rising soon? The gold stocks are currently above all of the regular SKI indices. They always decline back to those indices, but the big question is “When?”. Since current prices are above all of the regular SKI indices (the 16-20, 35-39, and 92-96 indices), I’ll have to use longer-term indices, run patterns, and historical time periods (ala half-cycle theory) to look for the meaningful high. The next resistance that sits above is the long-term 663 index over the next 1.5 weeks. The current run pattern is 1 day down and an extended 5 days up into Friday (5/22/09). The historical time period is measured from the date of the last buy index signal and it is being used up in a rapid manner. After all of this writing and all of your appreciated reading, I am not making a call right here, but am looking to identify the next meaningful high.

Nonetheless, after being multi-year bearish on the gold stocks since the May 2006 “death run high”, the “life run low” last Fall predicts multi-year gold stock bullishness.

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.

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.

321gold Ltd