SKI Gold Stock Prediction

presented by Jeffrey Kern, Ph.D.

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December 4th, 2002

Archived SKI Update
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Gold stocks fell on Monday, with USERX dropping to 3.99 into the 16-20 day index buy signal. We then surged 5% on Tuesday and 1.5% on Wednesday (today) solidly breaking the 35-39 and the 92-96 indices. A large surge up may have begun off of the 16-20 index buy signal. A buy signal that I had seen as “fairly meaningless” because I had looked for prices to remain down into the 35-39 and 92-96 buy signals (if they happened). Nonetheless the 16-20 index executed a non-XXed Out buy signal and appears to have marked a low. IN retrospect, I wish that I had executed….

In the very short-term, the run pattern will be 1 down and 2 up IF we decline tomorrow. That would a very bullish run pattern, with a clear surge up on the 2 days up marking an intermediate term low. Prices are allowed to fall for several days as long as they stay above the 3.99 low. This is not a forecast that prices will in fact decline tomorrow or for a few days. Rather, I am simply reporting that a down day tomorrow would be bullish. An up day would yield neither a clearly bullish or bearish run pattern.

If we stay above 4.03 tomorrow (and it certainly appears that we will), the 35-39 index would give its buy signal executed on Friday. It is also likely that the 92-96 index will execute its buy on Monday’s close. Such a pattern appears to be very bullish. It is called a true triple buy: the 16-20 buy at low prices followed by the other two index buy signals before any index has sold. Frankly, this has NEVER happened before since my prices began in 1974. It may be so bullish that I’m at a loss for words.

After we get the 35-39 and 92-96 buy signals, prices should rise into the 16-20 sell signal (as prices rise over the back 16-20 day prices). Those prices are approaching the prior high at 4.47 (the top of the last part of the apparent contracting triangle). We can therefore rise above 4.47 soon, breaking out of the triangle at the same time as the 16-20 index sell signal. The critical question is whether that 16-20 signal will mark a top. If it does mark a top, the triple buy will turn into a triple sell as prices fall below the rising 35-39 and 92-96 back prices (and NO, it cannot then turn back into a triple buy!).

Today, prices actually rose 1 penny over resistance: If you look back the 35-39 and 92-96 days you can see the 4.23 in the 92-96 back prices and the 4.22 in the 35-39 back prices. It appears that we broke out today. The next chart breakout occurs at 4.47. Note that on Monday, COMEX gold fell intra-day to exactly close the up-gap that I’ve been speaking about for weeks. We do now have an unfilled up-gap in the gold stocks from Monday’s close to Tuesday’s open. Will we fall back in the next 2-3 days to fill that gap? That would be too nice to buy on, so I can’t believe it’ll happen….

In short, it all looks very bullish. In the very short-term, a down day tomorrow would yield a bullish run pattern. The 35-39 and 92-96 indices will almost certainly give their buy signals over the next 2-3 trading days. I had hoped for prices to stay down and for the 92-96 index to buy before the 35-39 index near a low. That would have been the clearest bullish pattern I could ask for. Now the 35-39 index will buy before the longer-term bull-market 92-96 index. This leaves open the possibility that 4.47 will not be exceeded and that this upside move will end up being a fake-out. What I know is that we are getting a triple buy and a huge upside move is likely. A powerful up-move that could continue for an unknown (unlimited potential) time period. Bearish SKI has a potentially extremely bullish index pattern (and such bullishness is very rare).

Reprint from 11/29/02: Gold stocks continued their expected decline this week, with USERX falling from 4.14 last Friday, to 4.10, 4.10. 4.03, and 4.04 this week. On Tuesday, with prices remaining unchanged at 4.10, the 35-39 index back prices fell to 4.06, thereby breaking/hitting the falling 35-39 back prices. The expected decline ensued on Wednesday. Today, Friday, prices rebounded one penny to 4.04, once again hitting the 35-39 back prices that had fallen to 4.03 as of Friday. The 35-39 index is temporarily resistance and prices should fall at least slightly to stay below 4.03 next week.

The 16-20 index will execute its buy signal on Monday’s close. The alternative 15-19 index executed its buy signal at today’s close, 4.04. I remain skeptical that these represent valid buy signals because: (1) the time since the last 16-20 sell signal was too long, 17 trading days (good signals occur within 9-10 days of the sell signal), and (2) the buy signals are occurring after prices hit the 35-39 index resistance, having broken that index twice this week. However, we are in a reasonable buy price range and these signals are on the system’s path.

I continue to recommend waiting to buy until buy signals are received during the critical period. The 35-39 and 92-96 cycle lows are now due in 7-8 trading days when both of those back prices reach lows. It makes no sense for the 35-39 index to generate its bear market buy signal first. After 6 months of potential correction, the next move should be significant and long-term (many months) if we are going up. Therefore, the 92-96 buy signal should come first. That requires that prices stay below 4.03 and above 3.96, certainly above the last low at 3.87 (to form the contracting triangle).

In conclusion, this week’s decline was perfect in order to set up buy signals in 7-8 days. We need to drop a little more, staying above 3.87 and actually above 3.96. My concern is that gold itself has not dropped enough yet and still has an open up-gap about 2 dollars lower that needs to be filled. We’ll see if the gold stocks can hold up while gold falls next week. A breach of 3.87 or the failure to get the possible buy signals in 7-8 days would be very bearish. I am mentally preparing to buy if the signals are generated. Note that last Thanksgiving marked a major low, with USERX at 2.61. That low was marked by a 15-19 buy signal on the path at 2.62, but the 16-20 index missed a buy signal by one day. Prices then rose into a 92-96 index buy signal at 2.81 and the resulting rise is history. The current pattern looks so similar that I also remain skeptical. Let’s hope that prices go a little lower, then stay flat to generate the buy signals! Today’s rise to 4.04, hitting the back 35-39 price resistance, was not particularly encouraging. We are getting close to critical and I expect to Update more frequently.

Reprint from 11/22/02: Gold stocks fell about 7% this past week in line with the 11/13/02 Update indicating the short-term high was in place. USERX fell from 4.42 last Friday to 4.14 on this Friday. We actually got a double 1 down, 2 up run at the high (into 4.47 on 11/12 and then again into 4.42 on 11/15). The run down this week ended on Thursday at 4 days down. That occurred as USERX fell to 4.10, hitting the 16-20 back price support (at 3.98-4.10), and avoiding a bullish 2 up and 5 day down run. Friday’s rise was expected and did not change the short-term downtrend despite the key reversal up day in gold itself.

THE CRITICAL POINT IS IN 11 TO 12 TRADING DAYS. This has been the expectation for some time now. That is when the 92-96 AND the 35-39 back prices reach major prior lows. Therefore, I don’t have much to update until we approach/hit that time period. The 92-96 back prices will be at the late July lows of 3.58-3.96 and the 35-39 back prices will be at the late October lows of 3.87-4.02. The bullish case absolutely requires that we hold those back prices AT THAT EXACT TIME.

I’ve been reading various other sites this week and my indices are independently indicating almost exactly the same scenarios (I don’t know if that is good or bad). If we fail to hold above those back 92-96 and 35-39 day back prices at the PRECISE time required, that will confirm that we are in a Wave 3 down in gold stocks (and probably gold too), a very bearish long-term scenario. However, IF USERX holds at the precise time and generates a 92-96 buy signal and a 35-39 buy signal (in that order), the indices will project many months of continuously rising prices probably carrying USERX through its June high of 6.54. The chart would take the look of a contracting triangle (lower highs and higher lows since June). The 92-96 index would be buying within a day of the low ending the contracting triangle. In order to get those buy signals (essentially a triple buy pattern because the 16-20 index would also be on a buy signal by then), USERX can only drop to about 3.96 (a fall of only 4-5% from here) and therefore must clearly stay above the October lows of 3.87, making the chart look like a contracting triangle.

The last Update (11/13/02) indicated that a 16-20 index buy signal would occur quickly if prices immediately plunged, but that if prices did not plunge, the next 16-20 buy signal would be less useful. Prices did not immediately plunge. It’s now been 12 trading days since the 16-20 index sell signal on 11/6/02 (4.33) and the next 16-20 buy signal will occur sometime in 4-8 trading days. The large time separation between the sell and buy signals now makes this next 16-20 buy signal fairly meaningless.

In conclusion, the short-term trend continues to appear to be down. We’ll know whether the golds can turn bullish in 11-12 trading days if the 92-96 and 35-39 indices generate buy signals. I am hopeful, but skeptical. The buy signals would mean that I would have bought at each of the three contracting triangle lows. Perhaps you remember that at the July and October lows I bought and got stopped out of both of those buys. In two weeks I’ll get to see whether the indices served me well at those prior junctures: (a) If the indices buy and we get the long-term rise, I’ll have re-bought at basically the same price that I was stopped out at the last two times (USERX=3.96-4.24), or (b) If the indices don’t buy, the gold stocks will continue to decline and I will have avoided losses. I strongly believe that this is the type of juncture point where my indices will provide extremely important information. They will hit the critical time X price juncture to within a day. Have a nice Thanksgiving holiday with warm interpersonal relationships





How Did This Trade Work Out?

December '02




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

Dec 02 02
$3.99

Jeff buys more

Dec 05 02
$4.34

Buy Signal

Dec 12 02
$4.48

Sell Signal

Feb 25 03
$5.02
Feb 25 03
$5.02
$1.03 $1.03

This trade was punctuated by a historic Triple Buy Signal!

  » The Buy Signal
     Dec 04 02

  » The Triple Buy Signal
     Feb 25 03



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