SKI Gold Stock Prediction

presented by Jeffrey Kern, Ph.D.

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September 16th, 2004

Archived SKI Update
More About This Trade

The indices are generating a gold stock double buy signal for the close tomorrow through the close on Monday (Friday, 9/17-Monday, 9/20). The 35-39 buy signal is being executed at Friday’s close and the 16-20 index buy signal will execute on Monday’s close. The newer short-term index (that averages the 16-20 with a 15-19 indices; yields slightly higher profitability than the 16-20 index over all years) actually is buying tomorrow along with the 35-39 index. The 35-39 index is on the Path and is not XXed Out. It buys tomorrow in apparent synchrony with the short-term cycle.

I described the detailed probabilities associated with a double buys in the 6/24/04 Update: If one buys on tomorrow’s 35-39 signal and sold quickly on the (expected) rise into the 16-20 index sell signal, in the past, you’ve made money 35 out of 36 times, with the one loss being 1% and with half of gains falling in the small 1-3% range and the other half falling in the 5-8% range.

HOWEVER, my colleague searched for times that these two indices’ buy signals came tied/together, as is the current case. There were only two such instances and each was very different from the other and different from our current setup. One yielded a very large gain. The other sold out at a 1% loss in 2 days on an instant 35-39 index sell signal after the 16-20 and 35-39 tied buy signals. That was the one loser cited in the prior paragraph. My colleague says he’s not going to buy on 50/50 odds.

This week we were headed towards an incredible/impossible tied triple buy signal. If prices had risen on Wednesday (9/15), I’d have been writing tonight about 6-7 consecutive UP days into a weird tied triple buy. I was actually relieved that the tied triple buy did not come at the end of a major run up in prices. If prices had risen every day this week into tied signals it would have thrown my system into the perfect storm, a storm with an uncertain interpretation.

But prices declined on Wednesday, avoiding the 92-96 index buy signal. If prices hold above 6.50 through the end of next week, the 92-96 index will buy, generating a TRIPLE BUY pattern.My colleague says that it won’t happen, and that is why this double buy itself will quickly sell out at a loss. The stop on this double buy is clearly, definitively, a 35-39 sell signal. If prices fall below those 35-39 back prices, I must sell. Those back prices will be in the 6.30-6.51 area. Hence, as I’ve said before, prices really should hold USERX 6.51, but three or more days below 6.51 will probably generate a 35-39 sell signal that requires selling at a loss. The stop will take a week before it begins rising to lock in a profit. Therefore, the whole trade will either be nicely profitable or will sell out a loss very quickly (as usual).

One the upside, all the double buy has to do is hold prices above 6.50 for the next week and we’ll get a triple buy (more power). There’s only been that one prior triple buy that started on 12/2/02 at 3.99 and saw prices rise 40% in about a month before retracing almost the entire rise in the subsequent 5 months before doubling in the next year. I’d therefore have to expect some type of instantaneous rise starting on Monday or Tuesday (Federal Reserve announcement day), generating the triple buy late next week, generating an immediate 16-20 sell signal, and then going through the sell signal for a few weeks up to 7.82? before returning to the 7-7.20 area.

I was happy with Wednesday’s decline, but I was not happy with today’s (9/16/04) 1-penny rise in USERX. We now have absolutely NO run pattern to indicate a bottom. If prices fall hard tomorrow to my targeted 6.51 area, that would make for a better buy than today’s crappily high 6.72 USERX price.

I had been hoping and expecting a beautiful definitive pattern and as is usually the case (but not always), the pattern is less than perfect. If prices fall for the next day or two that would make more sense and limit the risk involved with buying. You can tell that I’m having a hard time stating exactly what to do. Bummer. The indices certainly know how to mark critical points, so even though things seem to be quiet, I DO know that tomorrow-Monday mark very large critical points for gold stocks. My colleague isn’t buying and asked (for the first time) that I publicly report his decision so as to balance my bullishness. But again, as you can tell, my bullish certainty has already been dampened. Nonetheless, I am going to buy half tomorrow and half on Monday (hoping that it goes down to 6.51 tomorrow and then up on Monday). Note that the Path is on a 35-39 index buy signal and not a 92-96 buy signal; hence this is not the start of a true bull, but a significant rise will hopefully ensue. The mechanical system and I are BUYING.

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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