SKI Gold Stock Prediction

presented by Jeffrey Kern, Ph.D.

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November 21st, 2004

Archived SKI Alert
More About This Trade

Gold stocks continued their seemingly relentless rise this week, albeit at a slow pace. USERX climbed almost 2%, while some gold stocks declined slightly (e.g., NEM down 1%). Iíve been taking profits into this rise for the past two months and with the gold stocks (USERX) now 5-12% higher than my selling points, Iím starting to pull out what little hair that I have left! Nonetheless, the market appears to have pushed itself to the absolute limit: It will HAVE to begin to decline now or SKI will be returning to the buy-side. Note that I have sent out two buy alerts (for 9/17 and 11/3/04) and the one sell alert was conditional and was not activated; the system remains on its 35-39 index buy signal from USERX 6.70. SKI (me) has been (stupidly?) selling (and not just following the system) to avoid a loss of profit (at the risk of missing additional gains).

More than two months ago I pointed out how it was possible for the gold stocks to continue to rise into the 218-222 index resistance because those back prices would just keep rising. And it just keeps happening in such perfect fashion that even I canít believe that itís happening like this. ON FRIDAY, WITH USERX CLOSING AT 8.90, THE PRICES FROM 218 TO 222 TRADING DAYS AGO REACHED THEIR ABSOLUTE EXACT PINNACLE. On last January 5th, 6th, 7th, 8th, and 9th those prices were 9.30, 9.16, 8.84, 8.91 (SELL DAY), and 9.07. Prices have now done this 6 times since the USERX low of 6.16 on 8/11/04. It is extraordinarily unlikely that this is all coincidence. Each time prices have risen into the 218-222 index, resistance has held. Hence, I am actually (perhaps stupidly) proud of my discipline of selling. Now, in my continuing efforts to catch the ďflying knifeĒ, I still say and more vehemently state ďFriday MAY have marked a very important highĒ. USERX closed at 8.90, just touching/hitting/breaking that 218-222 index once again (a sign of Ė3 on the index for that day; the current price was above one back price and below the other four back prices).

The 218-222 back prices will now begin their early 2004 plunge. By Monday in a week (not tomorrow), those prices will be 8.94, 8.73, 8.35, 8.01, and 8.08. Will prices now simply follow those back prices back down? If so, within a week, the gold stocks will need to fall more than 5% to avoid a 218-222 index buy signal. And within 3 weeks, prices will need to fall 13% to avoid the signal (falling back below all of my selling points, selling out the 35-39 index and ending the systemís buy signal from 9/17/04).

We have other important information to consider: the 16-20 index sell signal executed on 11/9/04 at 8.46. Recall that it had bought on the election day plunge, caused me to send that second buy alert, and executed on 11/3 at 8.01 for a four day 6% profitable trade. It has now been 8 trading days since that sell signal. The rule, as always, is that IF prices are higher than the sell price 9-10 trading days later (a half-cycle), prices almost always (97%) continue to rise for months (usually 2 more months). Therefore, the gold stocks would need to fall by about 5% within the next two days in order for that sell signal to be correct. And yes, I have seen it, on very rare occasions (once) take until 11 days after the sell signal. Note the harmony with the 218-222 index described above: FALL HARD NOW, RIGHT NOW, THIS WEEK, OR THE 218-222 INDEX WILL GIVE A BUY SIGNAL AND THE 16-20 INDEX SELL SIGNAL WILL HAVE BEEN SHOWN TO BE INCORRECT.

The run patterns this past week were bearish but did not work. Mondayís decline yielded the 1 Down and 4 Up pattern that I described in last weekendís Update. That 82% probability of a high obviously didnít stop the market. The ensuing 1 Down and 2 Up run (i.e., down last Monday and then up on Tuesday and Wednesday before dropping on Thursday) didnít stop USERX from making a one penny new high on Friday. That 1 Down and 2 Up involved a 4% rise (2% a day) so it was not the classic exceptionally bearish run that I always warn about. The very bearish run involves just 2 small up days. Therefore, right now, the run pattern provides no indication of a high on Friday.

IF the gold stocks rise or hold up this week I am therefore supposed to start re-entering on the long side (i.e., BUY). I will start buying at the end of the week and the following weeks only on down days, personally phasing in perhaps 15-20% of my money on each down close, using an initial 8.46 USERX stop loss, and planning to sell in about 2 months on a spike up for a 20-30% profit. If Friday was the high, the gold stocks should really fall this week and next weekendís Update may prepare you for the 35-39 index sell signal. If that sell signal is ever generated on a weekday, I promise, as always, to send an email alert. It canít happen during this Thanksgiving-shortened week.

It a beautiful, cold, rainy day in Las Vegas. The first snow has fallen on the mountains behind my house. Hoping that you have a warm interpersonal family get-together. I do the cooking and my sons and relatives are all coming!

How Did This Trade Work Out?

September '04 to December '04

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

Sep 17 04

Add Long, renewed Buy
Nov 03 04
Sell Signal

Dec 21 04

Nov 15 04
$1.36 $1.86

Jeff recommended to exit this trade a month early... a great move! Still, the Ski system was a winner. Here are the orginal SKI Updates for this trade:

  » Double Buy Signal
     Sep 16 04

  » Renewed Buy
     Nov 02 04

  » Alert: Jeff Sells
     Nov 21 04

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