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As a contributor to the New Low Observer (http://www.newlowobserver.com/about-this-site), we intend to give new insights on a low risk approach to trading in dividend paying stocks for tax deferred accounts. The New Low Observer (http://www.newlowobserver.com/about-this-site) is not intended for... More
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  • Gold Stock Indicator: Nearing A Buy Signal For NUGT 14 comments
    Apr 4, 2012 3:58 PM | about stocks: AU, GOLD, AUY, NUGT, DUST, GFI, RGLD, GLD

    On January 26, 2012, our gold stock indicator said that it was time to sell gold stock positions and go short gold stocks in general. On February 8, 2012, we published an article on Seeking Alpha (article here) that said the trend was definitively down. Since both the unpublished and published indications, the Direxion Gold Miners Bear ETF (DUST), our preferred vehicle for such a reliable indicator, has gained over +55%.

    Being neither bullish nor bearish on gold and gold stocks, if you haven't done so already WE RECOMMEND SELLING DUST at the market as we are nearing the point where an indication for the purchase of Direxion Gold Miners Bull ETF (NUGT) can be done with a reasonable expectation for substantial gain, as indicated in the chart below.

    image

    Despite the dramatic decline in gold and gold stocks on April 4, 2012, we must caution that the decline is not over. The above charts indicate that the dual short and long term gold stock buy indication should occur between now and June 7, 2012. However, we're not there yet.

    Our worst case scenario for a bottom in gold stocks is the period between June 15, 2012 and August 21, 2012. While downside risk will be present after the buy indication, we believe that, on a relative basis, our signal will provide the most ideal opportunity to buy NUGT.

    Our preference for using Direxion Gold Miners Bull and Direxion Gold Miners Bear ETFs aren't for the risk averse. As noted in previous articles found on Seeking Alpha, investors who wish to accumulate gold shares from within the XAU index should benefit from well-timed purchases rather than getting whip-sawed by a wildly gyrating index that will inevitably underperform the price of gold in the "long-term." We have identified the top five stocks that are likely to outperform the XAU index when the next buy signal is given. The five companies are AngloGold (AU), Yamana Gold (AUY), Gold Fields (GFI), Randgold (GOLD) and Royal Gold (RGLD). The most popular product for gold itself is SPDR Gold Trust ETF (NYSEARCA:GLD). GLD will also rise when the indication is triggered however not as much as NUGT.

    Gold stocks are approaching an unprecedented short term buying opportunity. If you've managed to follow our last gold stock indication, you have substantial profits to reallocate towards our preferred long instrument, Direxion Gold Miners Bull , when our Gold Stock Indicator registers a buy signal.

    Sell DUST at the market and be prepared to buy NUGT.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: Long physical gold and silver

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Comments (14)
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  • untrusting investor
    , contributor
    Comments (9966) | Send Message
     
    Looks promising. Will be following for updates and time to take a bet on this. Thanks for posting the information.
    4 Apr 2012, 04:44 PM Reply Like
  • untrusting investor
    , contributor
    Comments (9966) | Send Message
     
    NLO,
    NUGT continues to sell off. Has it reached a buy signal yet per your signals? And what would expect the price of NUGT to reach at that signal. It has just crossed under $13.
    22 Apr 2012, 02:56 PM Reply Like
  • New Low Observer
    , contributor
    Comments (2124) | Send Message
     
    Author’s reply » Greetings UI,

     

    Our long-term gold stock buy indication has been registered for the accumulation of gold stocks, as our recent articles on gold stocks have indicated ( April 10th:http://bit.ly/Jq68ek & April 16th:http://bit.ly/I2SE5o) at the disclosure lines (we are long NEM and GFI presently). The accumulation phase suggests that downside risk is still present as generally described in or article titled "A Strategy is Needed for Lagging Gold Stocks" (http://seekingalpha.co...).

     

    However, we're going to post an article that may require that we sell ONLY our gold stocks while retaining our other compounding investments. The reasons why and what to look for will be outlined in the next article approved by SA editors.

     

    NUGT is strictly a speculative vehicle and has not registered the "ultimate" bottom (short-term gold stock indication). The moment that happens, there will be a mad rush on our part to throw the kitchen sink at gold stocks beyond our current allocation.

     

    In this case, we will post the indication of when/if the short term gold stock buy indication is signaled in the comment section of this post 2 days after the fact. Our subscribers take precedent and receive the signal as it occurs.

     

    Regards.
    23 Apr 2012, 12:46 PM Reply Like
  • The_Hammer
    , contributor
    Comments (4065) | Send Message
     
    hey UI, Take a look at a number of major mining shares many are below the lower band of their Bollinger bands, RSI is blowing below 30 and volume dumping is quite high. Give NLO some credit do remember his article and we are setting up for a very aggressive bounce off the bottom for the major miners. However I do only believe it is a bounce probably to the 50 day imo. They have seriously broken down below supports so it may take a number of months to rebuild a base before it can move meaningfully higher again.
    4 Apr 2012, 05:05 PM Reply Like
  • untrusting investor
    , contributor
    Comments (9966) | Send Message
     
    TH,
    OK, thanks for the information. Yes, agree NLO has had some great articles and information. Would agree that markets may well be in for a serious sell-off. We normally have been selling puts for the last 1-2 years and done very well with them. But this time around we are buying puts for the first time (while prices are still relatively cheap) and think will pay off well over the coming few months.

     

    Will certainly be taking a look at PM and miners if the downside continues and some real bargains emerge.

     

    Best of trading and investing on your plays going forward from here.
    4 Apr 2012, 06:41 PM Reply Like
  • The_Hammer
    , contributor
    Comments (4065) | Send Message
     
    UI,
    How can u tell if puts are cheap?
    curious u are buying index puts or puts against long term positions?
    what index puts is best to use to protect downside of a long term portfolio?
    thanks
    4 Apr 2012, 09:01 PM Reply Like
  • untrusting investor
    , contributor
    Comments (9966) | Send Message
     
    TH,
    All options including puts are generally "cheap" when volatility (VIX) is low. That's just how options are priced. As volatility picks up then option premiums will increase.

     

    Actually buying mostly "naked puts" not against long positions we hold (just don't have that many left anymore either). But buying puts against equities we know well and have owned in the past but sold most or all of long positions by now. For example MGM. We purchased quite a bit of MGM between $3-5 back in 08/09. But have sold off virtually all of it now at between $14-16 over the past year or so. We initiated puts on MGM at $14 for May/12 at $0.72/put contract as we think it's a reasonable bet that MGM could easily fall to $9-$10 . At the time MGM was at about $14.30 or so. Today MGM is at about $13.75 and the put contract is trading at about $1.02

     

    The above is just an example of one trade we have put on in the past week or two via buying put options.

     

    We prefer selling put option contracts and have sold many over the past year plus. All of which expired worthless or we were able to close out at very very good profits. But our view is that the current environment favors buying put options now (instead of selling). We rarely deal with the index puts but prefer individual equities that we know well. But did sell some put options on TWM (inverse ETF) awhile ago which look like they will expire worthless thus capturing most or all of the premiums. Of course now, if one thinks the market will sell off, one would want to buy naked calls on the inverse ETF's. One of the volatility and option experts on SA recommended SDS, but have not personally done that option trade.

     

    Hope the above is some type of indication, at least of what we think might work. It remains to be seen if they do or not, but we personally think the risk-reward is pretty good on them at this point. Most of our option plays now are in the June & July time frame to give the markets time to build up some fear and start to sell-off, if the central banks actually let such happen this time around. It;s a risk alright, but at least a known and limited risk.
    4 Apr 2012, 10:34 PM Reply Like
  • untrusting investor
    , contributor
    Comments (9966) | Send Message
     
    TH,
    Erick Mckettrick and Bill Luby have some good volatility and option articles on SA. You might want to check some of their articles as they trade this stuff for a living and have some pretty good commentary and occasionally recommendations.
    4 Apr 2012, 10:40 PM Reply Like
  • The_Hammer
    , contributor
    Comments (4065) | Send Message
     
    what about tbt? this one if timed right could be a homerun?
    I have bought sds on a technical trade and it worked reasonably well, but only for about a month.
    thanks UI
    4 Apr 2012, 10:46 PM Reply Like
  • untrusting investor
    , contributor
    Comments (9966) | Send Message
     
    TH,
    We don't do TBT or the treasuries long either. Yes, TBT could be a home-run if timed right, but plenty have got badly burned trying to time that one for the last couple of years. Hoisington, who is one of the best bond guys, thinks treasuries will still do well in 2012. And he has been doing them right for decades now, so TBT is not a trade we would personally do now, based on his views.

     

    Probably will be waiting for some good long entry prices on some of the metals such gold, silver, platinum, and oil .... when and if we ever get a major correction in any of them. Like this idea on NUGT and some of the gold names. We think the central banks will intervene once again when and if markets sell off 10-20% again, which looks like a decent probability at this point.

     

    Good chatting with you and best of trading and investing to you.
    4 Apr 2012, 11:06 PM Reply Like
  • remurraymd
    , contributor
    Comments (2287) | Send Message
     
    Starting to bottom fish NUGT below 13 for a short term
    "buy the dip sell the rip" trade. We made 35% in Jan
    doing this with NUGT. APD
    7 Apr 2012, 09:00 AM Reply Like
  • lishensz
    , contributor
    Comments (12) | Send Message
     
    Buy NUGT now?
    15 May 2012, 11:15 AM Reply Like
  • New Low Observer
    , contributor
    Comments (2124) | Send Message
     
    Author’s reply » Greetings NUGT and DUST traders,

     

    After posting the above article on April 4th and suggesting that a low would be achieved between April 4 and June 7th the actual low was hit on May 15th. This was well within the indicated date range that a major low would be achieved.

     

    The run-up from the low was on April 15th and generated gains of +67%. Additionally, from when the short term indication was first hit on May 3, 2012, the gain was +21%. We weren't savvy enough to get the all of the gains from the indicated low, however, the Gold Stock Indicator appears to be hitting its marks with ease.

     

    At the current pace, our Gold Stock Indicator has a tentative downside target for NUGT of $6.00 before it crosses simultaneously below both the long-term and short-term buy indications as seen in the chart above. The estimated time-frame for this downside target is approximately 1 and 1/2 months from now.

     

    We expect that the conservative gain of +21% should be expected from NUGT once it first crosses below the short-term buy indication line. Significant downside movement would still remain as was the case after the May 3rd cross below the short-term buy indication. The amount of decline after the May 3rd indication was -28%, however, the subsequent gains of +21% was achieved in 35 calendar days while the bottom on May 15th achieved gains of 67% in exactly 30 calendar days.

     

    We provide "real-time" indications of our gold stock indications to subscribers (at NewLowObserver.com) whenever it crosses above or below short-term and long-term buy indications for DUST and NUGT.

     

    Regards.
    11 Jul 2012, 11:22 AM Reply Like
  • New Low Observer
    , contributor
    Comments (2124) | Send Message
     
    Author’s reply » Greetings,

     

    Based on our preliminary work, we believe that gold stocks as represented by the Philadelphia Gold and Silver Stock Index will reach our long-term sell indication between July 15, 2013 and November 25, 2013.

     

    This is our best estimate based on the current trajectory of our Gold Stock Indicator. As we get closer to the dates, we will be better able to project the next peak with what we believe to be a certain level of accuracy.

     

    This estimate is subject to change if the July 23/24, 2012 trendline is broken to the downside. The scenario that could easily break the downside trendline is a general stock market decline. Although Dow Theory indicates that this is a possibility we're waiting for the appropriate confirmation either up or down.

     

    Regards.
    10 Oct 2012, 10:50 PM Reply Like
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