Special SKI Report #38
Be Careful with Gold Stocks

Jeffrey M. Kern, Ph.D.
Email: jeff@skigoldstocks.com
USERX | historicals
Written May 30, 2008
Published Jun 2, 2008

Current USERX price = 16.88, Up 1.7% since the last report 3 weeks ago.

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 seven 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 34 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 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 on 5/11/08, I described how the SKI indices were (1) marking that date and price (so I couldn't disclose the directional prediction in deference to subscribers), and (2) that the next important SKI technical point should occur in 7-10 trading days. I describe when SKI and Jeff are wrong (such as missing the August 2007 low), so I am allowed to describe when we are correct. Folks, I pride myself on honesty and transparency because they are the number one characteristic that you should require from a newsletter writer. The second absolute requirement is that anytime someone writes to buy (or to short) that they simultaneously include a stop-loss point (in terms of time, price, planetary formations, or coffee grinds). I do not care what the method is, PLEASE ALWAYS REQUIRE THAT THE WRITER STATE HOW THEY WILL LIMIT ANY LOSS ANYTIME THAT THEY SAY TO DO ANYTHING WITH YOUR MONEY. I always do that because I invest all of my monies based upon my (and the mechanical SKI system's) predictions. Enough of a diatribe. SKI has been so accurate lately that I describe it as being "scary".

The SKI indices had, as of the last 321gold Special Report, generated a buy signal for execution on the Monday following that report. That's why I couldn't state the directional call for the precious metals (the stocks and the metals; they'll move together 98% of the time in terms of direction; not necessarily in terms of magnitude). So SKI bought again on 5/21/08 at USERX 16.69, suffered through a two-day decline and then prices rose into the confluence date (7-10 trading days from that last Special Report).

Prices rose in a highly predictive run pattern (see the top of this article for a definition of a "run pattern) of 2 days down and then 5 days up. That's a very high-probability topping pattern. Check out a chart of USERX for 1/14/08 and you'll see that same run pattern marking that high! More importantly, that run of 5 days up into 5/21/08 coincided with a 16-20 index overbought SELL signal (that was generated at the close of the prior day; therefore SKI provides a one-day notice). So we sold our gold stocks on 5/21/08 through Friday 5/23/08 and took the profit (not enough to make anyone rich, "just" a 5-10% profit in 7 trading days; but I put most of my net worth into such signals).

That may appear to be difficult to believe, but the SKI index signals were even more precise. The 35-39 index was within a day of a bullish buy signal, but the gold stocks declined each day after 5/21/08 to barely avoid that buy signal. The gold stocks opened higher each day, but closed lower. On Friday (5/23/08), immediately before the 3-day Memorial Day holiday in the U.S., a close above USERX 17.47 would have generated such a buy signal despite the bearish run pattern from earlier in the week. However, USERX closed down 9 pennies at 17.46 and classically avoided that buy signal by a penny.

So, Jeff wrote to execute a short position as soon as possible. I shorted June gold at 928.50 in the global market on Monday (5/26/08), predicting a gold plunge after the 3-day weekend. Folks, it's been bingo city for SKI for months now. But the best time to subscribe is when SKI and Jeff have been wrong for a while! Seriously, SKI works, but not always. Hence most folks tend to subscribe after I've been accurate over and over. Just like the markets, everything is psychologically perverse. You should be subscribing when I am describing that I have been wrong for a while. Actually, you should be subscribing all of the time without trying to predict the predictor! (smile). I actually report significant subscriber patterns to readers because such patterns are contrary indicators. (That will make you hesitant to subscribe!; smile). Seriously, when I get a wave of cancellations or new subscribers, I write how that should coincide with a high or low, but I only use that as a little piece of information; the indices and run patterns are what counts).

Conclusion:

Last week's expected decline in the precious metal's group last week yielded still more SKI index signals, so I've covered my short position. This complex has been going up and down like a yo-yo. SKI CAN OBTAIN A TRUE BULL MARKET 92-96 INDEX BUY SIGNAL LATER IN THIS COMING WEEK via small rise. Such signals mark the beginnings of true bull market long-term rises, but can also be quickly stopped out for a small loss that leads to a significant decline. Do not buy here if you don't have the appropriate stop-loss point because I continue to expect a large decline to a life run low. My expectations are not what we act upon but the yo-yo may continue until folks capitulate, perhaps on the cyclical July 4th 3-day weekend. Be careful here. I do not know if SKI will buy this coming week or if such a buy will get stopped out and cause Jeff to re-initiate a large short position. This should resolve within the next 7 trading days and might involve some bothersome whipsaw price action.

Best wishes, Jeff

P.S. Eventually the goldies will be flying and that time should be approaching, but a large decline (more than just a "correction") could be signaled soon.

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.

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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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