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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
  • Is It Time To Buy DUST Or NUGT This Week? I Plan To Buy DUST 26 comments
    Aug 11, 2013 12:34 PM | about stocks: GDX, GLD, DUST, NUGT

    If you have been reading my articles recently, you will see that I have been on a roll correctly timing the market, picking changes in market direction on stocks and commodities with an uncanny accuracy. Can I meet the challenge to correctly call the next turn in gold and gold mining stocks? Well, I will give it a try.

    The Recent Rally In Gold, Miners & Materials Is Corrective

    Every dog has its day. The beaten down mining and material stocks did have a nice rally the last couple days, and that rally could continue for a bit longer. But do not lose track of the fact that this is only a minor correction in an overall well ingrained down trend. We could bottom soon, but to do so, further retests of the lows will likely be required. What we've enjoyed this past week was a long overdue oversold bounce. The news out of China on Thursday and Friday was very constructive, and it forced a lot of shorts to cover. But realize that inventory restocking could just be a temporary fleeting positive blip. Also, a weaker dollar was helpful this week, as it made materials cheaper for foreigners to buy, spurring a little demand. Unfortunately, if one studies currency charts, one will see that the dollar is approaching some significant long term support levels and it may soon spring back up a bit, depressing gold and other commodities. When one factors in the recent weakness of the dollar, the action in gold has been quite anemic and unimpressive.

    (click to enlarge)

    This chart of December Gold shown above, was posted by Jim Wyckoff at kitco.com. You can click here to get directly to the posting. What I see with the action in gold the last couple days, is similar to what occurred just prior to the big downward plunge in April of this year. Back then, there were 3 green candles (up days) just prior to the big plunge. I believe Thursday is equivalent to the first of the three April green candles. If correct, then Monday should be a strong up day in gold that brings us a top, making a 2nd green candle. Then Tuesday, August 13, 2013, should be a hard down day. Wednesday could be a minor up day, making the final green candle, and Thursday we could drop $75 and Friday another $50, as we retest $1,200.

    History does not have to repeat itself, but in any case, after three up days in gold, if Monday we rally for a 4th straight up day, I will be getting short gold and long DUST. I will then look for a hard drop in gold on Tuesday, August 13, 2013, and a sell off in the gold mining stocks (GDX). I will then watch to see if Wednesday consolidates and then we plunge lower on Thursday and Friday.

    Dust Is Near Support At $70

    (click to enlarge)

    Looking at the DUST chart, you will see that the low on Friday was 70.09 which is major support. Three weeks ago we had one close under $70 and then began a nice rally to $108. I am hopeful that gold will pull the GDX higher on Monday, August 12, 2013, and cause DUST to dip back to $70 or a bit lower, to allow me to position myself long DUST, the triple inverse ETF that goes up when GDX falls. For the time being, all dips in DUST should be buys, especially if one is buying in the $70 to $72 area and lower. Remember that one must always anticipate the potential for great volatility in this leveraged triple ETF and keep the position small. Then if we overshoot to the downside and trade down to $60 or at major long-term support at $50, instead of getting stopped out, one will be prepared to buy aggressively on the weakness, averaging down and getting positioned for a move back above $120, and possibly as high as $200 if gold should take out support at $1200.

    The long-term trend in gold and the gold miners remains down. I do anticipate a significant bottom in the 3rd or 4th quarter of 2013, but we still have unfinished business to the downside left to do, if one follows Elliott Wave Theory, and other technical charting patterns. Even if gold has already hit bottom and the miners have likewise seen their lows and DUST has seen its high, one should be able to successfully buy dips in DUST and sell out on rallies, if one plays small enough that one has remaining cash to average down on all dips to new lows. DUST is definitely the ETF that I will prefer trading over NUGT, as we are near the $70 support level, and we are near support in the dollar. I anticipate a higher move in the dollar next week, which should accelerate by the end of the week. That should correspond to a lower move in gold and GDX, and a higher move in DUST.

    Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in DUST over the next 72 hours.

    Themes: Short Gold Futures Stocks: GDX, GLD, DUST, NUGT
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Comments (26)
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  • Robert, your record and approach seem compelling to follow, thus signed on as a follower to see if the expectations for this weeks pattern come to pass. You called today's action spot on so far.
    12 Aug 2013, 10:21 AM Reply Like
  • We broke $70. What is your stop loss? Every good trader has stop losses.
    12 Aug 2013, 11:31 AM Reply Like
  • Interesting.
    12 Aug 2013, 05:22 PM Reply Like
  • Well I would say Gold should move up a few more days this week (looking at the SSTO/MACD of GDX) before the downfall begins. How big of a fall...that if Robert is right can be HUGE!
    I'd say DUST would bottom at $50 since we broke the $70 support pretty easily and the Gold rally is starting to slow down...or do you think it has started to reverse already?
    12 Aug 2013, 06:20 PM Reply Like
  • Author’s reply » I have no stop loss, (I only do an equity loss), as that is not my style. At the end of the day I had a small loss in DUST but made enough in other positions to earn an overall profit for the day. I am accumulating a position down to 50 price in DUST. My average price on shares so far is 63 as I took profits on low priced shares on small rallies today. I still don't have my full position on as I anticipate lower prices and have plenty of fire power to add lower and average down. A stop in DUST guarantees failure as one will almost inevitably get stopped out just prior to a big move up. At higher prices in GDX and lower in DUST, we should get bouncier and get more rallies.
    12 Aug 2013, 09:29 PM Reply Like
  • Author’s reply » If you read my article again, you will see how I say to add at 70, 60 and 50, buying a bit along the way as we drop, averaging down and not playing a stop. This is called scale trading and it is how the big boys became big boys. They don't put in stops, they buy more on weakness when the dumb money is getting stopped out. You should not play so big that you have to use stops when one is getting into a position against the trend, trying to position for the next move going the opposite way. I have mastered the art catching falling knives. I am hoping we fall to 50 so I can average down even lower and get a full position on. If we stop at 60 on the downside, I will not get a full position on.
    12 Aug 2013, 10:26 PM Reply Like
  • I really find these posts interesting. With regards to gold, it looks like no one can exactly point at one correct direction, either it is North or south. The recent market conditions seem to have fared well for gold and miners with dollar slowing down, job #s not beating expectations, chinese data (wth).. The worst is yet to come for dollar with tapering talk around the corner. I'd love to believe in bearish gold pattern here but the factors here are pointing currently to a bullish move. And these factors play out well in short term direction of the gold prices. Technically miners have lost their shirts but everything is swinging back and forth. Dollar direction would point to gold's long term move. DUST is beaten up badly past few days and is poised for a rebound at-least to 85-90 range end of next week.
    13 Aug 2013, 03:39 AM Reply Like
  • Author’s reply » We just rallied to nearly 66 in DUST, allowing me to take profits on half my position above 65 (my ave. is 63). I now hope DUST sells off so I can add more since I only was carrying a third of a position overnight and now half of that is gone, leaving 1/6th of a position.
    It is Tuesday and Gold is selling off today right on schedule, but even if gold would rally a bit higher instead of falling, I am saying the safest play is DUST from the long side on dips. It takes rallies in gold and GDX to get the dip one uses to buy. I successfully catch falling knives, which everyone says you can't do, but I have figured out how to do it quite profitably.
    13 Aug 2013, 09:45 AM Reply Like
  • Really tough to call today but if DUST sells off today, what price would you add more to your position?
    13 Aug 2013, 10:02 AM Reply Like
  • Author’s reply » I just bot back a few shares 61.93. Will buy again 60.50 area and every dollar down all the way to 50 if it hits that low. However, I sell out on rallies taking profits where I can on the lowest shares.
    13 Aug 2013, 10:19 AM Reply Like
  • Author’s reply » If I buy 50 shares and DUST rallies a $ then I make $50 and cash it in. Then I hope it falls so I can buy back, or ride the rest of my position higher if it chooses to go up. This is a win/win, regardless of direction.
    13 Aug 2013, 10:25 AM Reply Like
  • I took some profit as well but hanging onto a core for bigger gains..any thoughts on what it will it take for DUST to get back to around $80-100?
    13 Aug 2013, 10:50 AM Reply Like
  • Author’s reply » If gold rolls over and falls $50 to $1277 in Sept. Gold then DUST will be there. Tell me where gold is going and I will tell you where DUST is going. Hedge funds are less bullish on gold based on commitment of traders info. out yesterday at Bloomberg.com. Dollar is starting to base here and a move higher in the dollar could push gold lower.
    13 Aug 2013, 11:00 AM Reply Like
  • Author’s reply » Just sold 50 shares 63.49, what I bought at 61.93. Will buy again on dip to 61.50 area, 60.50 area etc.
    13 Aug 2013, 10:28 AM Reply Like
  • Do we know that dollar is stabilizing at these levels? If yes, why sell DUST for a $ or 2$ profit but just hold on to and average out on all lows. Is it really worth taking the $ profit or waiting couple of days for a 10-20% profit, or is it just minimizing the risk when we are not certain about gold's movement at this point.

     

    I am "guessing" DUST will now go to 74-78 range before it falls any further. Its just a retreat from the 3 days of major fall.
    13 Aug 2013, 07:23 PM Reply Like
  • Author’s reply » We often have a retest of lows after one to two up days, so I expect 60 will be retested before we bottom for good, so that is another reason I take profits when I have them.
    13 Aug 2013, 10:53 PM Reply Like
  • Author’s reply » Quick profits is my trading style. I scalp $25 to $100 several times a day in 2 to 6 markets. Keeps risk down. It helps cover drawdowns when trying to get a position trade established. Right now we are catching a falling knife in DUST so taking quick profits allows one to make several trade profits to minimize risk.
    13 Aug 2013, 10:52 PM Reply Like
  • DUST OR NUGT ?
    14 Aug 2013, 09:24 AM Reply Like
  • You are always bullish on DUST when majority is bearish.
    14 Aug 2013, 09:24 PM Reply Like
  • Author’s reply » Traders are the most bearish on DUST when it is at the low prices. I like to buy low and sell high, so I try to figure out a way to buy at these low prices and still protect myself if it goes even lower. It is much easier to buy low than to buy high, hoping it goes higher. At least buying low one has a lot less room to fall.
    14 Aug 2013, 10:48 PM Reply Like
  • can anyone suggest best brokerage to buy NUGT or 3X leverage ETFS?
    15 Aug 2013, 08:04 AM Reply Like
  • Author’s reply » Sold a big chunk of DUST bot yesterday just above and below 57 at 58.50 today. Will add on weakness. Looks like DUST bottoms today and turns higher!
    15 Aug 2013, 08:41 AM Reply Like
  • Man you get in and out quickly. I assume you trade smaller chunks and holding core for larger move? I bought a another chunk at 55 just now and will hold for a couple of days.
    15 Aug 2013, 09:56 AM Reply Like
  • Author’s reply » Bot two more times in mid to low 55s and sold at 57 and 58 since last post. Will continue buying and selling on all dips. Looks like bottom is forming in dust.
    15 Aug 2013, 10:41 AM Reply Like
  • Robert - DUST got obliterated this week and gold is up strong. Any updates to you views mentioned this is blog w.r.t GDX, NUGT, DUST and GLD?
    15 Aug 2013, 05:42 PM Reply Like
  • Hey Robert - appreciate your analysis! Got into DUST at $59 today, best to just hold out as I agree gold is eventually going down?
    thanks!
    15 Aug 2013, 06:23 PM Reply Like
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