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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
  • 2008 Holds Clues To Current Action In ETFs Of GLD And GDX 4 comments
    May 19, 2013 1:38 PM | about stocks: GDX, NUGT, DUST, GLD

    Seven days down in a row in both the gold metal and the gold miners (GDX) and it is not over yet. We might still drop down an 8th day on Monday to match the last time this occurred, in late February and early March 2009. I decided to study the charts of both the gold metal ETF (GLD) and the gold miners ETF (GDX) as they traded in 2008 and 2009, to get insight as to what may occur presently. The last time the GLD and GDX were weak was during the financial crisis of 2008 and the ultimate stock market bottom of March 2009. In looking at those charts, I gleaned some valuable information which I will share in this article.

    In 2008, the GLD ETF which correlates with the movement of the gold metal, double bottomed in October and November 2008, at a price of around 69. By late February 2009 it managed to rally to 99, and then began the 8 day selloff to 88.45 before bouncing in a couple days to 93, a 43% correction of the down move. A couple days later GLD fell to 87.47, a new low, only to rally to 91.89 just 3 days later, a 38% correction of the down move from 99. Three days later GLD hit a low again of 86.83 but that same day, it reversed higher to close over 93. The next day it hit a high of 94.77, a 66% correction of the down move from 99. Then there was a steep fall lasting 3 weeks down to 84.92 where a major low was put in GLD. Then a six week rally began that brought GLD to 97 and the lows remained intact to this day. What this all shows is that when making a bottom, volatility increases and there are significant moves both up and down.

    The gold mining ETF GDX began trading at 35 on May 22, 2006. From that time until present, it has spent very little time under 30. There have in fact been only two major dips below 30; the fall of 2008, and the recent selloff we are now going through. Lets go through the 2008 price action to get some insight as to how wild GDX can swing both up and down during major bottoms. On July 14, 2008 we see that GDX topped at 50.70, fell in 5 weeks to 33.11 and then hit a high of 38.02 on August 28, 2008. That is when it gets real interesting as we start the drop below 30. In just 14 days GDX bottomed at 26.75, to rally back to 37.88 again in 11 days on Sept. 22, 2008. Another 14 day drop brought GDX down to 24.74 on Oct. 6th, only to pop back on Oct 8th (just 2 days) to 30.95. These are significant percentage drops in GDX and significant short covering rallies. I cannot imagine playing the leveraged ETFs of NUGT and DUST as volatility gets much more severe in future moves. The first dip under 30, caused a rally of $11 and the second drop under 30, caused a rally of over $6. One can see that when trading below 30, GDX can have large counter-trending moves back up.

    Continuing on, after hitting a high of 30.95 on Oct. 8th, GDX fell in two days to 24.14. Subtracting out the weekend, in just two trading days on Oct. 14th, GDX popped back to 28.17, a pop of over $4. In three days GDX fell over $7.50 to 20.51, only to rally in one trading day over $3 to 23.66 on Oct. 20th. Then came an $8 selloff in just 4 days to 15.48, with an $8.69 rally in 12 days to 24.17 on Nov. 5th. The low of 15.48 recorded on October 24, 2008 was the lowest price GDX has ever traded. The initial pop off the low was over 56% in just 12 days. But GDX was not done going down because 8 days later it dropped to 17.40, a fall of $6.77, or 39%. Then in one day, on Nov. 14th, GDX rallied $4.73 to 22.13, a gain of 27%. Within 6 days, GDX fell $4.93 back to 17.20. From there we popped $8.92 in just 8 days to a high of 26.12 on Nov. 28th, a gain of 52%. In 7 days on Dec. 5th, GDX held above 20, stopping at 20.73, but still a selloff of $5.39. Then 12 days later on Dec. 17, 2008, GDX hit a high of 33.12, gaining $12.39 (60%) and solidly back above 30. During the 3 1/2 months of dipping below 30 and bottoming, there were 8 significant swings lower and 8 large corrections higher in GDX.

    Unlike 2008, GDX has recently fallen about twice as much as GLD on a percentage basis. It continues to underperform day after day but at some point this will reverse and GDX should be the preferred trading vehicle. Although June Gold Futures bottomed at $1321.50 on April 16, 2013, it was able to correct back to 1487.20 on May 3, 2013. That is a correction of over $165 or 12 1/2%. GDX on the other hand hit a low of 27.27 and rallied back to 31.27, a pop of $4.00 or 12.8%. However, GDX has now traded down to 26.36, making a new low by about 4%, when the metal is still about 3% above the April low. Within the next day or two GDX should bottom and should have a significant rally hopefully back up $4 which would represent a 38% Fibonacci retracement from the 36.29 high that GDX hit on April 9th.

    Recapping the current action, from the 36.29 high of April 9th, GDX plunged under 30 for the first time since 2008, hitting a low of 27.27 in just 6 days. From that bottom, GDX corrected back up $4 in 8 days to 31.27 on April 25th. We are now only on the second swing lower with the current low of 26.36 and counting. One would think that we might bottom at 25 to 25.50, and should then get at least a $4 correction back higher off the low. If we get that rally, then it may be time to play for a move lower. Remember in 2008, there were 8 swings down and up, before 30 was retaken. Since falling below 30 in 2013, we are now only going through the 2nd down move which could end soon. I have positioned myself long the miners and gold metal, looking for a move back to $29 to $30 in GDX and a move above $1400 in the metal. If we get that pop then I expect to reverse and get short for the next dip lower.

    Disclosure: I am long GDX.

    Stocks: GDX, NUGT, DUST, GLD
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Comments (4)
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  • GDX already gained 5%. Another 5% will make it to $30. NUGT to $11 area according to your theory. At this point I expect GDX to move up for 2-3 days.

     

    Once DOW begins a real correction of 300-500 drop, then the commodities will soar!
    20 May 2013, 04:33 PM Reply Like
  • Author’s reply » We got a nice outside day up in gold and silver today, turning up big from early weakness when 8 down days in a row looked assured. The real body of today's candle totally engulfed Friday's real body when one factors in the entire day of trading till 5:10 p.m. Eastern Time. Where from here? Well, I am thinking it is getting really dangerous trading 300% leveraged ETFs of DUST and NUGT, but for informational purposes, I will give targets using DUST and NUGT but if trading them, keep it small. DUST engulfed 3 days of trading to the downside, something not done since March 6th. The next day on March 7th, DUST bottomed and reversed. I look for the same on Tuesday. I would guess that if DUST traded between 90.50 and 93.50 it could probably be bought for a $5 to $10 pop, and may close as high as $101 or $102 either Tuesday or Wednesday. I am looking for DUST to sell off hard on Thursday so I would not marry the trade. NUGT will have trouble moving above 10.50 on Tuesday but after a couple days of consolidation could hit 11.00 on Thursday. GDX will find resistance on Tuesday at 28.40 to 28.70 and could go sideways to a bit lower through Wednesday. I am looking for 29 or higher to be hit on Thursday, if things play out as I see them now. I will adjust my projections after I see what takes place on Tuesday.
    20 May 2013, 08:32 PM Reply Like
  • Author’s reply » I did not take profits on my long mini (32 ounce) gold positions (YG) on Monday. I was projecting a move to 1398 to 1399 and we stopped at 1397.50 area on Monday, 5/20/13. Well, I felt we would hit it on Tuesday and placed sell orders to take profits at 1397 and to reverse (go short) at 1398. The big 100 ounce contract (GC) hit 1399.90 overnight and I got out and went short. When my alarm went off at 4:00 a.m. Eastern time (I begin trading stocks pre-market then) I was able to cover my short at 1384 and then go lightly long for a couple quick scalps. I was careful buying since I thought we were vulnerable for a retracement down to 1375. Well, fortunately I did not hang anything and was able to buy 1376 at 5:10 a.m. this morning so I am long and feeling good about my prospects. I feel all dips are buys in gold for at least a week.
    21 May 2013, 05:27 AM Reply Like
  • Author’s reply » Today gold corrected back down a bit but it did have a higher high and higher low than Monday. I believe Monday and today is similar to February 21st and 22nd, 2013 whereby gold reversed up after a several day down draft and then the following day we fell again, only to then get two strong up days. I believe gold goes up Wednesday and probably Thursday strong. Looking at the dollar chart I also see where Wednesday we could have a weaker dollar. We are still oversold and I do not believe we immediately fall back down in gold right after the big Monday key reversal.
    21 May 2013, 06:25 PM Reply Like
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