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Robert Edwards
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Contrarian daytrading technician who specializes in locating high probability short term trades while predicting price movement directions with over 85% accuracy. Most of my trading involves either extremely short term micro scalping of stocks or commodities (using 1 minute bar charts), or swing... More
  • Road Map For Trading DUST (Leveraged Inverse Gold Miner ETF) In 2013 4 comments
    Apr 6, 2013 12:43 PM | about stocks: DUST, NUGT, GDX

    On Thursday, April 4, 2013, the GDX (Gold Miners Index) made a new 52 week low but then finally got a short-covering rally off the lows, as bears took profits and bulls moved in to catch the falling knife. This caused the triple leveraged inverse (bearish) ETF symbol DUST to rally to an 11 month high of 70.92 before falling back to close at 61.87. Since the support in GDX has been broken again, I decided that I wanted to take advantage of the weakness in the gold miners by getting long DUST on Friday. So before trading began on Friday, April 5, 2013, I did research to determine where I might be able to buy DUST and was able to predict the daily range for DUST on Friday as a high of 64, a low of 57.50 to 58, and a higher close. The actual range turned out to be 63.92 to 57.88 with a close of 62.65. up 78 cents. Armed with my prediction of where DUST would trade on Friday, and my conviction that the first dip after a new high would be purchased, I got long at 58.64 and took a larger than normal position. The trading rule of thumb I was using relates to my love of ice cream ...... one can always buy the first dip! No, seriously, the rule is this: After a stock makes a new high, One can almost always buy the first dip! Why? Because those who missed getting in will be looking to get long and they will come in and buy on a minor pullback, in hopes that the stock will rally back up and make a new higher high in short order. That is exactly what I am now predicting to happen in DUST. I am looking for a target of $80 being hit as soon as next week.

    How did I come up with Friday's range prediction and my prediction of a top of 80 coming next week? Simply by looking at where DUST traded at when it made its last super all time high in May 2012. Check it out for yourself by plugging in DUST at stockcharts.com. Put in the specified date range of 2012-02-06 thru 2012-10-05. Then on the daily chart click Inspect at the top of the chart and you can scroll over and look at the daily ranges of last year. There you will find that nearly a year ago DUST topped out on 05/09/12 at 68.74 and then closed down just as we did on Thursday, 04/04/13. The next day we hit a low of 56.66 but closed near the highs of the day, similar to Friday, 04/05/13. Then Dust moved up 4 days later to the all-time high of DUST of 78.66. I predict that within the next few days we take out that high and hit 80, or a bit higher and then we have a substantial correction.

    We do not have to exactly trade like we did in May 2012, but it is definitely a great road map that can be followed as long as it is working, and during the current rally, the road map has been great. What it tells me is that all dips can be purchased in DUST for the foreseeable future. How do I know? Because when we topped out at similar prices in May 2012 at 78.66, the ETF would correct in 3 weeks to the 38 area and then rally to a secondary high just above 60 in 6 weeks.

    Prediction of upcoming DUST trading targets:

    Based on what DUST did in 2012, I am now predicting a high of $80 in April 2013, a low of around $40 in May 2013 and then a secondary high of around $60 to $65 in June 2013. That is the macro view. I will be buying all dips through the secondary high of June 2013. At that time we should top and I will then switch over to NUGT, the triple leveraged ETF that goes long the miners. I will then trade NUGT for about 3 months until DUST is allowed to bottom and then I will switch back to DUST again.

    Lots of Swings from April 2013 thru June 2013

    Looking at the 2012 chart of DUST, one could have profitably played the swings both long and short. From the $78.88 high we fell to 55 in a week. If you did not want to short DUST for that swing, you could have gone long NUGT. Anyway, just a day later, after bottoming at 55, DUST rallied to 65 before quickly falling to 48, then rallying to 57 before falling to a major low of 37.75. The high to low occurred in just 14 trading days, about 3 weeks. By switching back and forth from DUST to NUGT, one could have had some nice swing trades during that three week period. There was a $23 down move, a $10 up move, $17 down move, $9 up move and $19 down move. So we fell about $20, rallied about $10 at a time, fell about $20, rallied about $10, and fell about $20.

    CONCLUSION: ROAD MAP FOR DUST IN 2013!

    After hitting a high in May 2012 just under $79, we bottomed on 06/06/12 at just under $40, in 3 weeks. DUST rallied to a secondary high of just over $60 in 6 weeks, went sideways a couple weeks, and then rolled over and fell from $60 to $22 in 9 weeks. The exact number of weeks may differ in 2013, but the price levels will probably not differ much. In 2013, I am looking for a top of $80 in DUST, then a drop of about $20, rally of $10, drop of $20, rally of $10 and drop of $20, that will leave us at a $40 low plus or minus $2.50. I then believe we will work ourselves to a secondary high over the next 6-8 weeks to about $60 to $65, followed by a long 8 to 10 week sell-off to a low of $20 to $25. As time goes on I will readjust this forecast so stay tuned. However, this road map should be close enough to reality to be extremely valuable. I am giving it away to the world to prove that sometimes history does indeed repeat itself and by looking at old chart patterns one can discern the future. It will be exciting to see how close my prediction is to reality.

    Disclosure: I am long DUST.

    Stocks: DUST, NUGT, GDX
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Comments (4)
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  • Robert Edwards
    , contributor
    Comments (413) | Send Message
     
    Author’s reply » I agree with the consensus that there is a 50% chance that we stabilize somewhere between 1450 and 1500 in gold and in that case we basically stop at 80 in DUST. Gold might find support at 1470 then rally maybe to 1520 and then fall to maybe 1435 where a bottom is formed and a rally begins that brings gold back towards 1600 or higher and DUST eventually loses half its value from 80 down to 40.

     

    If however, we face a liquidity crisis like we did in 2008, then DUST could go much, much higher as gold continues to fall to 1345 or 1270 or lower. It would go like this.

     

    Back in 2008 GDX began at 50 and fell to 27, rallied to 37.50 and then fell to 15.50 before working its way back to 37.50. In 2013, we have so far started at 55 in GDX at the top, and fallen to 32 so far. Another 10% down move in GDX would give up a bottom in GDX around 29. That would translate to another 30% up move in DUST or about 104. If GDX gets a similar $10 pop as it did in 2008, then DUST would fall from 104 down to around 50 to 52. But then GDX would do a big dive down to maybe 17 and DUST would rally to 140 to 150 on a major blow-off top. I will keep you posted with updates to let you know if I see the 2008 repeat scenario playing out.

     

    For the sake of the people in this country and all people around the world, we hope that 2008 is not going to repeat, but it is too early to say for sure. What needs to happen to prevent it, would be some sanity and stability return Sunday night and Monday when gold resumes trading. Bargain hunters and cash gold buyers need to step up to the plate and start buying soon.
    13 Apr 2013, 03:34 PM Reply Like
  • Robert Edwards
    , contributor
    Comments (413) | Send Message
     
    Author’s reply » Not only did DUST trade to 104, today it nearly reached 120. I feel that gold stocks have been beaten up severely and are extremely oversold. If one is long DUST it is time to get out and move over to NUGT and go the other way for a bit. NUGT traded and closed under 10 today, which when one considers it recently had a 1 for 5 reverse split, it is below 2 when comparing to the pre-split price. GDX is surely at long-term support and should get a small consolidation if not strong bounce back rally going.
    17 Apr 2013, 08:00 PM Reply Like
  • Robert Edwards
    , contributor
    Comments (413) | Send Message
     
    Author’s reply » My last comment on 4/17, I suggested getting out of DUST, and moving over to NUGT. I caught the bottom of NUGT under 10 and added in the 10.30 to 10.50 area. I took profits today on NUGT as it moved above 11.75 and approached 12 and did not move above 12. I am now flat. I am trying to access where we are and where we are going. I now recommend staying away from leveraged ETFs for a few days till things settle out. I think it most prudent to trade small in GDX or NEM or another good solid gold company. I am not that happy about how they are trading the gold stocks and the metal in here.

     

    Every day there is strength in the metal in Asia where long-term investors are buying physical gold -- gold coins and bars. Then after Europe opens, selling starts and intensifies in New York. Regarding the mining stocks of FCX (copper), CLF (iron ore), and GDX and NUGT (gold) they are strong pre-market, then they get knocked down hard, only to fight their way back on the close. It is hard to hold past the pre-market because you know the smack down is coming from 9:30 to 10:00 a.m. Today the smackdown weakness lingered longer but finally we did rally and CLF and FCX actually closed up. Gold stocks did not do that well late because the metal did not close on the high. Gold has a lot of approaching 1450 and it could cap the upside for a few days. That may stop the rally in the gold stocks.
    22 Apr 2013, 06:56 PM Reply Like
  • Robert Edwards
    , contributor
    Comments (413) | Send Message
     
    Author’s reply » Today one should have been taking profits in GDX, FCX, NEM, and NUGT above 13. On any further gold stock strength I will be looking to get back into DUST. From the 50 support area, DUST recently rallied to just shy of 120, a gain of 70 dollars. In the last five days DUST has taken back 50% of the rally, which brings us to today's closing price of 85, a whole 35 dollars off the high. Where is the support from here for a swing low? We have already corrected 50% of the recent rally. The next support area is a fibonacci retracement of 68% of the 70 point rally or 47.50 from the high. Counting from 120 high and dropping 47.50 we get a price of 72.50. Looking at the DUST chart you will see a gap at 70 which should also provide great support. I will be buying 100 shares of DUST around 78 to 82 area (around 80) and adding another 100 shares of DUST as it approaches support in the $75 to $70 area if it goes that low. If we stop at 80, expect a quick rally back to 100 and possibly 105 in DUST. If we stop at 70, expect a rally back to 95 to 100. In any case, 82 down to 72 is the optimum area to be buying DUST right now, and 95 to 105 is an area you should be selling out your DUST.
    24 Apr 2013, 10:49 PM Reply Like
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