SKI Gold Stock Prediction

presented by Jeffrey Kern, Ph.D.

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August 5th, 2005

Archived SKI Update
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Last weekend I wrote that the next weekend’s Update (this one) should be the BIG ONE. At least I got that correct. Mark Tuesday 8/9/05 as the day that the indices go to the long-term bull market side. The rare event that I spoke of a month ago appears to be occurring. The master 92-96 index will be buying on Tuesday’s close on the rare 92-96 index buy signal that is on the Path and NOT XXed Out UNLESS (here’s the unlikely caveat) the gold stocks (USERX, the gold mutual fund) plunge 6% on Monday 8/8/05 to below USERX 7.65. The buy signal is going to be generated on Monday and SKI will be risking his monies starting on Tuesday’s close.

The run pattern was 3 Down and 5 Up into last Wednesday’s Special SKI Update that called that a high of either short or long-term significance. As that Special Update stated, it should only be a short-term high IF the resulting fall still yielded the master 92-96 buy signal. Yes, we need one more day, but the gold stocks’ retreat since Wednesday has only caused USERX to close at 8.14 as of Friday, 8/05/05. If you note the 92-96 index back prices as of Friday, they were 8.26, 8.13!, 7.84, 7.78, and 7.65. By barely staying over that 8.13! the buy signal is virtually assured.

Please remember that SKI signals mark critical points. And they do it beautifully. I must write that it IS still possible that last Wednesday’s spike into the 92-96 index at 8.29 could have marked a major high. That run pattern of 3 Down and 5 Up marks the high at 8.29. But that scary run pattern (that for example, marked the exact multi-year high on 12/2/03 at 9.37) can be offset by 4 or more consecutive days down to form a low. The declines on Thursday and Friday give us 2 days down. IF we get 2 more days down (of any size), the run pattern will also turn bullish. Please go your nearest gold sanctuary and pray for 2 more days down of any size. Two more days down into the buy signal will arrest almost all of my fears that I will be buying near a major high.

Now I am going to temper your enthusiasm a little more. The risk on this buy signal is substantial. Nothing can offset the master 92-96 buy signal except for a 92-96 sell signal. Those 92-96 back prices are falling and will continue to fall down to the 6.28 May low. In other words, I (You) could lose about 20% on this signal in the worst-case scenario. Plan now that you MUST sell on a 92-96 sell signal at any time in the future. And this stop will take 96 trading days (5 months) to reach the break-even point (there are only low prices for the next 5 months). Therefore, for this buy signal to generate a profit, prices need to rise for more than 5 months before there is a rising stop. The 92-96 buy signal would be predicting rising prices for far longer than 5 months! And such a long-term rise is exactly what is expected. But if it is wrong, it will sell at a loss.

The other possibility is that prices fall into Tuesday and the index buys at let’s say, 7.85. Thereafter, prices immediately fall and sell the system out in just a few days for a 3-4% loss. There have been several XXed Out and non-XXed Out 92-96 buy signals on the Path that have sold very rapidly at small losses. That would be unfortunate, but acceptable. A 20% loss would be the largest in history and would be unbearable for me.

Here is the history of 92-96 index buy signals on the Path. I am not including the buy signals that were XXed Out except to mention the only XXed Out signal that made money. The XXed Out one that made money was the most recent 92-96 buy signal on the Path, buying on 12/6/2001 at 2.81. Prices rose in 6 months to 6.54. I thought that it might be a valid buy signal and that the XXing Out would be wrong; hence I bought and sold several times during that rise, capturing about half of it. Be aware that the 92-96 index does not sell out at highs. I’ll have to rely on the run pattern or something else to sell near the top. For example, on 5/29/02 I wrote, “The run is now at 2 down and 7 up, rising an average of almost 3.5% per day. Such runs have ALWAYS marked major highs EXCEPT during the greatest bull markets in history (e.g., during the late 1970s). THIS RUN PATTERN HAS ALWAYS MARKED MAJOR HIGHS EXCEPT DURING SUPER BULL MARKETS. Therefore, after USERX experiences its first down day, that should be a major high.” I sold there. Thereafter, USERX plunged to 3.58 and the 92-96 XXed Out trade sold at a profit, 4.06.

The 92-96 index buy signals on the Path and not XXed Out have been correct 8 out of 11 times. Note that they are not perfect, but are the required SKI signal for all huge bull runs since the early 1970s.

1. 1974: Buy 42.8 Sell 50.8 in only 15 trading days.
2. 1977: Buy 14.2 Sell 16.0 in only 31 trading days.
3. 1977: Buy 14.7 Sell 15.7 in only 29 trading days.
4. 1977: Buy 16.5 Sell 21.0 in 136 trading days.
5. 1977: Buy 21.5 (Exact high to the day) Sell at LOSS 20.0 in 9 trading days.
6. 1978: Buy 20.8 Sell 73.8 in 465 trading days. The first great bull run.
7. 1981, October: Buy 54.8 Sell at LOSS 53.4 in 2 trading days.
8. 1982, July: Buy 40.6 Sell 88.2 in 220 trading days. The second great bull run.
9. 1983, 4 days after trade #8 ended. Buy 85.1 Sell 89.7 in 16 trading days.
10. 1985, May 5: Buy 56.6 Sell at LOSS 46.2 in 61 trading days. This one was an 18% loss and was very strange. I actually delayed buying, then sold when it rose 10% in a week, then bought back and sold at 46.2 for a total loss of 12%. Bad.
11. 1993, Feb 11: Buy 14.8, prices rise to 28.3 over 6 months before collapsing into the 92-96 sell at 18.50 (the exact day of a major LOW! And a massive run pattern buy of 2 Up and 5 Down). This was what I call the third bull run since 1972.

The upcoming signal (pending Monday) cannot sell out quickly at a profit. This one will either have to sell out fairly quickly at a loss or be a great bull run. The bull run, if it occurs, would be wave 3 up and should be the most powerful of this decade. In my view, I must risk buying this signal to preserve the purchasing power of my dollars. Of-course Tuesday is the day that the Federal Reserve will raise interest rates again and the markets will react to their statement.

Assuming that the signal is generated, what does that mean for other financial assets? A year ago I vehemently wrote to sell real estate and everything on the triple sell signal. I did. I am worried that this 92-96 buy signal will auger for a continuing rise in real estate and that I have sold everything except for my home. But I’ve also learned that inter-market relationships are temporary and unpredictable. Interest rates used to rise with rising gold stock prices, but that relationship has fallen apart this decade. The dollar has risen for months but the gold stocks have also risen. I recommend that you don’t use this gold stock buy signal to project other markets. I am still expecting rising interest rates and a falling real estate market. I’m also guessing that the stock market won’t fall apart while the gold stocks are rising, but that the stock market also won’t be exploding upwards with the gold stocks.

When I buy, I usually anticipate an immediate (that’s within one day) rise in the gold stocks. That is NOT the case with this signal, a long-term buy signal. In the late 1970s, the gold stocks stayed flat to up for a month before declining 10% and only then started their explosion (the system sat through a 6% loss). In the early 1980s, the 92-96 buy signal was followed by a decline of 9% over 3 weeks. In both cases, the 92-96 index did NOT sell. One had to sit through a loss before the explosion. In 1993 the gold stocks simply rose, immediately and continuously in a gradual manner. In other words, since the current 92-96 back prices will be falling, the current signal could be followed by sideways to down action for several weeks. Do not bet (via options, for example) that the gold stocks will instantly explode off of this signal. The only bet is that any price decline will NOT yield a 92-96 sell signal (and remember, those back prices will be falling, so a decline may not sell the system out).

I’d love to be able to buy and then go into a stupor for several months, only to be awakened by a 92-96 sell signal. I’d want to avoid watching the markets, because if we don’t get 2 more down days, the gold stocks might scare the heck out of me before rising on the last possible day to avoid a 92-96 sell signal. It has happened before. USERX could easily fall back to the break-out at around 7.82 in the weeks ahead to scare the heck out of me (if they don’t fall to there is the next few days). If you buy the signal, stay disciplined and don’t sell unless the 92-96 index sells or we get a long and large rise.

Therefore, if we don’t get the 2 more down days, I may only buy 50-75% on Tuesday and use any and every subsequent down day to add, to buy more. Adopt a buying strategy that fits your personality and that you can adhere to based upon what you know of your own emotions. Do not buy more than you can afford: Do not allow yourself to sell on a decline that doesn’t generate a 92-96 sell signal.

I have been waiting for this signal for many years. Such signals always occur, we just don’t know how long we have to wait. And I promise (100%) that if this signal occurs and the rise ensues, that the market will decline into a sell signal at some time in the future. Hopefully, just not for the next many many months.

I’ve been writing these Updates for 5 years now. This appears to be the signal that I’ve been waiting for. Thousands of people are on the email list and even more are readers. Please put me in suspended animation after I buy so that I don’t have to endure the pain/euphoria of watching. Just another day or two to wait. SKI’s going to be a gigantic but anxious bull? I can’t believe it, but that’s the way it is. I sure hope this signal, if it occurs on Monday, will be correct (that’s an understatement!). I am already having difficulty sleeping and I haven’t even put any money at risk. Perhaps you can tell that emotionally I’m more anxious and worried than excited.

Simple translation of this Update: Buy gold stocks on Tuesday’s close IF prices don’t plunge 6% on Monday. Then sell on a 92-96 index sell or at a 100%+ profit. The maximum risk is a large 20% until 5 months after the buy day.

How Did This Trade Work Out?

August '05

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

Aug 09 05

Sell Signal

When ?????

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This chart shows the most recent SKI Signal, the True Bull Market Signal of '05! SKI has not said sell.... YET!

  » SKI True Bull Market Signal
     Aug 09 05

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     Aug 10 05

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