 Special SKI Report #28
Gold Leaves SKI in the Snow
Jeffrey M. Kern, Ph.D.
Email: jeff@skigoldstocks.com
USERX
| historicals
Written Nov 4, 2007
Published Nov 5, 2007
Current USERX price = 20.36,
UP another 8% since the last report 3 weeks ago. What a surge!
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 six 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 32 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 at http://www.skigoldstocks.com/about.php.
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
SKI Report on 10/14/07 continued to express skepticism
that the gold stocks would extend their surge from the August
16th 2007 bottom. In the last three weeks, however, the price
rise continued at an even stronger rate than during the three
weeks before the prior SKI Report. SKI HAS BEEN LEFT BEHIND
IN THE SNOW (i.e., "in the dust") as USERX (the gold
stock mutual fund) has risen 52% over the past 55 trading days.
I write about timing successes in these reports and am now writing
about this miserable timing failure. It is quite painful to
watch the gold stocks surge week after week while I sit in cash
making 4.5%. And it's even worse when that cash in denominated
in U.S. Dollars (affectionately referred to as "toilet paper"
by some readers).
I could write that the rise
hasn't been as wonderful as it looks: (1) All asset classes
denominated in U.S. Dollars have risen, (2) Folks in other countries,
whose currencies have risen relative to the U.S. Dollar, have
obtained much weaker capital gains than U.S. investors, and (3)
A simple money market fund investment would have returned about
7% in the 1.5 years since the May 2006 major high in the gold
stocks as compared to the 14% rise in USERX since that 2006 high.
But the bottom line is that USERX has risen 52% in the last
55 trading days and USERX is now 25% higher than the 92-96 index
buy signal that could have been bought on 9/12/07 at USERX 16.15!
I couldn't execute that buy signal because it was supposed to
be marking a topping area.
Perhaps some of you are in
a similar situation: The train appears to have left the station
and I'm not on the train. What is one supposed to do now?
One answer is to throw caution
to the wind and simply buy now or at least just do some buying
every day that the gold stocks decline. In hindsight, that strategy
would have worked beautifully at any time in the past two months.
The difficulty with such a strategy is that all of the SKI indices
are much lower than current prices. Therefore, the stop loss
point on any current purchase would be well below current prices
and a significant loss could occur. Of-course one can then reply,
"Who cares about stop losses? Just buy and hold, forget
about market timing. This is a bull market and any decline will
result in an eventual larger rise!" Although I do believe
that prices will be higher in the years ahead of us, that reply
assumes that one's predictions are always correct. Managing
money requires risk management, first and foremost.
Do you recall the folks who
bought and held during the decades of the 1980s and 1990s and
sat through 90% losses SEVERAL TIMES? In fact, if you'd bought
USERX at the very bottom of the 1970s, in 1976, when gold fell
from $200 to $103 an ounce, you'd have bought USERX at 11.30.
If you'd have held that perfectly timed purchase until today,
you still would not have even doubled your money over more than
30 years!
The alternative strategy is
to wait for the eventual price pullback. This strategy leaves
one open to the pain that the market will just continue to rise
in the near term and then the pullback might even bottom at a
price that is higher than the current price. Whenever the next
pullback occurs, and at whatever price it bottoms, you'll still
have the risk that the market will continue to decline.
But the difference between
the two strategies described above is that by adopting the conservative
strategy of waiting for a decline, the risk can de defined.
Most people agree that losses are worse than missed gains because
a 10% loss requires more than an 11% gain to compensate for the
loss. Therefore, I am in the miserable position of having to
sit through a continuing period when prices may rise without
me while I wait for a lower risk entry point. I have only made
about 10% in 2007, but I do not want to lose.
In addition, the technical
problems (from SKI's perspective) that I've mentioned previously,
remain in place. Prices, however, have not shown any tendency
towards confirming the technical caveats that have been predictive
since 1974. Is this time "different", or, as some
folks write to me, "Is SKI finally broken" after 34
years"?
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.
Best wishes, distraught Jeff
 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.
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