SKI Gold Stock Prediction

presented by Jeffrey Kern, Ph.D.

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June 19th, 2004

Archived SKI Alert
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Summary: If gold stock prices (USERX) stay above 6.81 this week, a nice double buy pattern will cause me to buy. However, if prices fly up through this week, the signals will cause me to initiate a short position. The gold stocks are are at a minor-moderate critical point based upon the “crossing over” of back prices as of last Friday 5/18/04.

The gold stocks’ expected hard fall last Monday (6/14) was followed by a recovery to close the week with an overall 2% gain, as USERX fell to 6.61 on Monday only to recover to 7.01 by Friday’s close.

That fall combined with a muted rise on Tuesday and Wednesday was sufficient to generate the previously described 16-20 index “buy” signal on Thursday for execution on Friday’s close at 7.01. My new SKI2 (developed recently, simply an equally weighted combination of the 16-20 index plus a 15-19 day index) actually executed on Thursday’s close at 6.84. That index will either execute one day earlier than the 16-20 index OR tied with the 16-20 index. It has a very slightly better 30-year record than the 16-20 index.

I’ve expressed skepticism regarding the probable profitability of the current 16-20 index buy signal. It has come many days after the 16-20 index sell signal on the 5/27/04 top of USERX 7.37 (so from sell to buy signals, the index “made” 5%). Furthermore, the signal has now come at what appears to be a fairly “crappy” high price at which to buy. Finally, I have reviewed the entire 30-year database and found 6 instances when a 16-20 buy signal occurs on the path immediately after a big double or triple sell pattern. Of the 6 occasions, 3 netted profits of 2-6% and 3 were 10-15% losers (meaning that prices continued to fall and were 10% lower AFTER prices had once again risen to the next 16-20 sell signal).

Gold stocks, as a group, have entered a critical period of minor-moderate importance as of Friday: The 16-20 and 35-39 index back prices are CROSSING. This crossing is not nearly as important as the triple crossing that occurred in mid-April. This is the smallest possible crossing (the two shortest weakest indices). The 35-39 back prices began to fall below the more recent 16-20 back prices on Friday. The crossing over with be complete by this coming Thursday’s close (5/24). [What’s with this “crossing over” garbage anyway, sounds like the TV show that tries to contact deceased loved ones (our goldies?)! That last sentence was supposed to be a chickenski bad joke….] A 35-39 index buy signal WILL be generated IF USERX stays at or above 6.81 through Thursday’s close. That’s a minor double buy pattern that has never lost money (N=34, but that N is not exact, just my memory). The pattern has yielded 1%-15% profits. Current prices began to rise over the back 35-39 day prices on Friday. The index was “hit/touched/broken”, representing resistance as having been “hit” on Friday.

Due to the questionable characteristics of Friday’s 16-20 index “buy” signal (that’s supposed to come at/near a bottom), I have been advocating waiting to see if we get this nice double buy pattern on Thursday of this week for execution Friday. This scenario requires that USERX (the gold mutual fund) stay above 6.81 this week. It would be nice if USERX stayed down below 7.00 but above 6.81 so that I can buy at a decent price. Alternatively, if for some reason the gold stocks fly up over their 5/27/04 highs this week (USERX = 9.37), the 35-39 buy signal could come tied with a very fast 16-20 index sell signal. That might be the shorting opportunity that I’ve been waiting for. In either case, I’d send an email alert.

The third possibility for this coming week is that prices simply gradually decline and avoid the 35-39 index double buy. After all, prices can also fail during a crossing over period and the big bearish triple sell pattern is still only 2 months old. This third scenario REQUIRES that prices decline below USERX 6.81 this week and follow through to test/fail at the 5/7/04 low of USERX 6.45 during the following week.

So, I continue to have no position in the gold stocks, but two of the above three scenarios will cause me to pull a trigger. If prices simply decline (scenario #3), the market will have once again prevented me from initiating any long or short position. Best wishes.

P.S. Since the triple sell in mid-April, the gold stocks have certainly fallen, but thankfully the financial world remains intact. I’ve got 3 more months before my apartment complex sale is closed, so I’m rooting for stability. As it turned out, that sale on the day of the triple sell was never signed because the partners believed that we could sell at a higher price. Two days later the complex was “sold” to a condo-conversion developer so as to net us another 50% in profits with the same Fall closing date! The rooting section says, “Let’s get a double buy now and hold these markets up”!

How Did This Trade Work Out?

June '04 to July '04

SKI BUY SIGNAL SKI SELL SIGNAL Jeff Sold SKI Gain/Loss Jeff's Gain/Loss
Buy Signal

Jun 18 04

Jeff buys more
Jun 25 04
Sell Signal

Jul 09 04

Jul 09 04
$0.36 $0.36

A pure mechanical winner with an additional, optional buy signal. Here are the orginal SKI Updates for this trade:

  » The Buy Signal
     Jun 19 04

  » The Sell Signal
     Jul 11 04

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