Special SKI Report #57
Gold Stock Update

Jeffrey M. Kern, Ph.D.
Email: jeff@skigoldstocks.com
USERX | historicals
Written Jul 26, 2009
Published Jul 28, 2009

Current USERX price = 12.85, Up 3% 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 7/5/09, titled “The Next Gold Stock Critical Point”, I described how SKI had bought and that the gold stocks were approaching another critical point in 7-10 days. I also wrote that SKI would get stopped out of the long position if the gold stocks declined the following week.

The day after writing that article the gold stocks declined approximately 3.5% and that was enough to cause me to sell the group at a small loss. However, the continuing decline during the remainder of that week of 7/06-7/10/09 certainly set up the anticipated “critical point” as three major SKI indices came into the picture. Prices declined to simultaneously hit the 35-39 index, the 92-96 index, and the 881-885 index.

The most interesting of the three indices was the very long-term 881-885 index that compares the current price to prices from 885, 884, 883, 882, and 881 trading days earlier. It’s such a long-term cycle index that it rarely generates signals and I actually view it as being somewhat experimental because my database since 1974 isn’t really long enough for there to have been a sufficient number of those index signals to provide proper validation.

Nonetheless, that 881-885 index had marked the exact day of the great crash low on October 27th 2008, adding to its validation. The following table shows the gold stock (USERX) price for each day and the corresponding prices from 881-885 trading days earlier. (And by the way, if you look at a charting service for these back prices, the charting service will be incorrectly providing you with prices that have been adjusted for dividends over the past 3-4 years; use the actual price; “the price was the price”).

You should be able to see that on 7/08/09 the current price fell to hit those back prices and that was the closing low once again.

Simultaneously with that hit of the 881-885 index, the 92-96 index was also hit. Here is the table of those back prices:

You can once again see how the current price declined to hit the index back prices on the day of the closing low on 7/08/09 and then moved above the back prices.

Conclusion:

The indices had marked the high to within one day back in early June and then marked the precious metal sector’s low on 7/08-7/13/09. I sent the buy Update and bought on the day of the intra-day low on 7/13/09, but the nice rise in the subsequent two weeks caused me to take profits rather quickly on 7/23/09 as the gold stocks rose into two index signals marking resistance (the 16-20 index and the long-term 218-222 index). Most gold writers appear to be bullish, but there are some who continue to believe that a Wave C decline to $650-$750 is still possible. My beliefs fall into the bullish camp because we had a life run low pattern in the Fall of 2008 that portends years of rising prices, but the SKI indices are set up properly for a major decline beginning now. Note that they are set-up for that possibility, but I have not obtained the clear sell signals that occurred in early June 2009, July 2008, or March 2008. Therefore, such a decline is not a forecast.

If you follow that rather amazing 881-885 index, that should tell the tale here. If prices decline enough to go below all of that index’s back prices towards the end of this coming week, a major decline should be underway. That index has repeatedly acted as long-term support. And its back prices are rising:

If prices do not begin a major decline this coming week (and I do not expect such a major decline), the 881-885 index’s back prices will rise for a week, then decline for about two weeks, and then begin the 2006 bull market rise to the USERX high of 17.96 in May 2006. A brief decline early in this coming week followed by a rise into the following week, and then a decline for about 2 weeks would keep the bullish case alive and set up an extremely bullish pattern of either three or four simultaneous SKI index buy signals of short-term and long-term duration (a 16-20 index buy, a 35-39 index buy, a 218-222 index buy, and perhaps a new 881-885 index buy signal) in August. The more indices (and hence, “cycles”) that occur simultaneously, the more powerful the market’s move and it appears that most market sectors are moving together and opposite to the US Dollar.

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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