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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
  • NUGT Should Bottom By Friday, Sept. 27, 2013; Then Rally 2-3 Weeks Or More  20 comments
    Sep 23, 2013 11:13 PM | about stocks: NUGT, DUST, GLD, GDX

    Sorry folks about not getting an article out over the weekend but I made a commitment to help someone that ended up requiring working all weekend to complete the task. Anyway, here is the update.

    My Prediction Accuracy Is Usually 85%; NEVER 100%

    I predicted a DUST rally after the Fed "no taper" decision and I was correct. Then I decided to do a 2-day counter-trend pop in NUGT, and dip in DUST today for which I was wrong. I am glad I was wrong because some had to have been wondering if I was human. I was getting so lucky on my guesses. This is a reminder that they are only probabilities. They usually work but sometimes they do not.

    Strong Hands Win While Weak Hands Lose

    If you are desperately emailing me wanting assurance that NUGT or DUST will rally in the next couple days, then you are trading too big. If you are trading too big, then you will get frightened out of your position and take your loss right before the turn. If you can't sleep at night, you are trading too big & need to read this. I survive because I trade in and out and constantly reposition while keeping my trading size manageable. Since I am in NUGT now and losing a little money, I will focus on that market until we rally high enough to get my and our money back.

    The Weekly GDX Chart Helps Us Calculate Our Risks

    It is prudent to look at the weekly chart of GDX going back a year and a half to see where we are, and maybe we can then figure out where we might be going. The weekly GDX chart is shown here:

    (click to enlarge)

    The weekly chart shows how the value of the gold miner ETF (GDX) has fallen from 54.69 high to a July low of 22.21, in less than a year. That is a drop of almost 60%. Thus a lot of bad news is priced in and any further drops in gold mining stocks should occur very slowly with many bounces in between. From a value standpoint, GDX is looking very attractive and that is why I decided to try buying the leveraged miner ETF (NUGT) shares last Friday and today. The above chart shows that we are trying to make an inverted (upside down) head and shoulders pattern in GDX which is quite bullish. The left shoulder was formed in April and May, and the head was formed in July when the major low occurred. After rallying back to 30, we are now dipping down to form the right shoulder of the pattern. If we then rally back to 30, the pattern will be complete. By busting through the 30 price resistance after that (breaking the neckline), then the pattern will be confirmed and we could rally as high as 37.50 or 40 in GDX, which would translate to price potential of 125 to 130 in NUGT. If we are indeed forming the right shoulder, we must bottom soon, and remain above the 22.22 low. An ideal stopping point on this current dip would be 23.75 to 24 at worst, or a low of 41.50 to 43 in NUGT. Closing today near 51 in NUGT, that is a bit of pain, with potential for a whole lot of gain.

    What I care about most, is not how much money I can make on the trade. I focus on what happens if I do ride through the bottom, carrying my NUGT shares to as low as 41.50. Will I be able to get out at breakeven in a reasonable time after that. To that I would say, probabilities are quite high that GDX should minimally trade above 30 again, translating to a price of 63+ in NUGT, and it should occur within the next 30 to 45 days. One should space their buys so that they sill have money to purchase NUGT shares as low as 42 or 43. If one is too heavily invested already, the worst thing one can usually do is panic and sell out on a low. However, on some strength back to today's highs for instance, one might want to lighten up and sell half their position. Add the loss to the remaining shares and use the freed up cash to purchase more on any further dips this week (a win/win strategy I believe in).

    One final thought before we move on. Look closely at the right side of the chart and one can see we are starting the fifth straight down week. When we made the July bottom, it took a 5 week down pattern to get to the low. Since this is the 5th week again, the weekly chart projects a bottom in GDX and NUGT coming by this Friday, September 27, 2013. After we bottom, I would expect a 3-4 week rally and possibly as long as 7 weeks in GDX & NUGT.

    Now Look At The Daily GDX Chart To Try And Time The Market

    (click to enlarge)

    When the FED did not taper last Wednesday, we popped big last Wednesday making a large white candle. When this occurs, the market loves to get a lot of traders buying into that strength and then it falls the next day and the bulls get trapped and hang their shares. It often happens that the market then loses all of the upward spike and a bit more, running stops and causing the bulls to give up at the bottom. That did happen today when we traded below the recent GDX low price of 25.08. Now that the stop have been run below 25.08, we can turn up at any time. Or we might keep falling to the next major support at 24. If 24 is the bottom, that will be a 4% plunge in GDX and a 12% plunge in NUGT, so NUGT could hit 45. I will be surprised in reality if NUGT trades much below 48 as we should start bouncing and going mostly sideways as we prepare to start the next big rally. Looking at the June 28th spike bottom, we rallied one additional day and then fell 6 days. Then we moved out of the lows for good. Since last Wednesday's big white candle in GDX & NUGT, we have fallen back 3 days. That would mean Thursday is the bottom. If you factor in the extra up day back in July, we move the bottom back a day to this Friday. Now the daily chart and the weekly chart are calling for the same Friday low of Sept. 27th.

    Disclaimer:

    Past results may not accurately predict future price movement and the bottom of GDX may take longer to form than expected. Trading triple leveraged ETFs like NUGT and DUST are dangerous and traders can and do lose money. That is why one must employ sound trading practices to include money management and cost averaging to keep risks to a minimum.

    Disclosure: I am long NUGT.

    Stocks: NUGT, DUST, GLD, GDX
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Comments (20)
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  • Namaste13
    , contributor
    Comments (12) | Send Message
     
    Robert, do you still see a bottom for NUGT for tomorrow? Seems to be slowly rallying already.
    25 Sep 2013, 07:27 PM Reply Like
  • Namaste13
    , contributor
    Comments (12) | Send Message
     
    Do you still see a bottom for NUGT for tomorrow? Seems to be rallying today...
    25 Sep 2013, 07:28 PM Reply Like
  • Robert Edwards
    , contributor
    Comments (540) | Send Message
     
    Author’s reply » I see mostly sideways action for the rest of this week, with normal pops and dips. Next week strong bullish cycles should kick in to lift NUGT above 61 and higher hopefully.

     

    The suggestion in the article to lighten up on strength was very timely. On today's pop back to 56 in NUGT, it was a great time to take profits on shares bought near the lows around 49 to 50, and to lighten up on shares purchased too early in the high 50s. In the aftermarket this Wedn., Sept 25th, I was able to pick up shares at a discount thanks to the late day selloff and further weakness after the close. One must sell out and take profits to have cash to buy and take advantage of these dips. I already have all my money back on shares purchased just under 58, and we closed under 53.
    25 Sep 2013, 10:48 PM Reply Like
  • $DUST
    , contributor
    Comments (59) | Send Message
     
    I swear Rob, if $NUGT bottoms this Friday, I'm coming for that crystal ball of yours.
    26 Sep 2013, 04:22 PM Reply Like
  • Namaste13
    , contributor
    Comments (12) | Send Message
     
    Are you aware of the potential for government shutdown next Tuesday? How would this shutdown impact the gold miners?!
    26 Sep 2013, 05:33 PM Reply Like
  • Robert Edwards
    , contributor
    Comments (540) | Send Message
     
    Author’s reply » This should make bonds rally and interest rates to drop (miners are heavy in debt). Also, it is a negative to the economy so the slowdown will depress energy usage and lower the prices of oil and that is bullish for gold because mining is energy intensive. These together are slightly bullish but being a pure technician I believe all fundamental news that is known is already factored in on price so any reaction should be very temporary of a day or two and that is all. Now if things don't get settled in a few days....the longer things drag out, that could be bearish for gold as demand for gold my drop in the severe downturn of economy. Just my immediate thoughts, I could be wrong.
    26 Sep 2013, 05:45 PM Reply Like
  • Namaste13
    , contributor
    Comments (12) | Send Message
     
    So what's your position? Still long NUGT? Do you still see another low in NUGT for tomorrow? If so, what's the low range for tomorrow and high for Monday?
    27 Sep 2013, 12:41 AM Reply Like
  • Robert Edwards
    , contributor
    Comments (540) | Send Message
     
    Author’s reply » Regarding price projections for Friday, Sept 27th, with December Gold staying above 1320 all night and now popping above 1330 and now trading above 1340, we will gap up on Friday and likely not fill the gap. The sky is the limit on the upside on this coiled spring.
    27 Sep 2013, 07:51 AM Reply Like
  • Robert Edwards
    , contributor
    Comments (540) | Send Message
     
    Author’s reply » I have a core position of 400 NUGT. In addition, in the night session I bot 200 NUGT in my trading account for 50.65. When Dec. gold popped above 1330 this morning, Sept. 27th in the premarket, after holding above 1320 all night, I bot 200 more NUGT 51.70.
    27 Sep 2013, 07:21 AM Reply Like
  • Namaste13
    , contributor
    Comments (12) | Send Message
     
    I've got shares at 51 & 52. I would like to hold them as is for a few days and watch them rally up in the 60's as you previously predicted... Hitting 60's or higher would be good!
    27 Sep 2013, 06:00 PM Reply Like
  • Robert Edwards
    , contributor
    Comments (540) | Send Message
     
    Author’s reply » That is two of us. Gold needs to hold in and rally, and GDX needs to catch a bid and higher prices are doable. Bullish cycles should start their influence next week. Will be fun to watch.
    27 Sep 2013, 06:03 PM Reply Like
  • $DUST
    , contributor
    Comments (59) | Send Message
     
    Dust needs to fall already, I am tired of looking at all that missed opportunity :*(
    27 Sep 2013, 08:12 PM Reply Like
  • Robert Edwards
    , contributor
    Comments (540) | Send Message
     
    Author’s reply » No reason to fret it. Every time you see that NUGT is starting to top out and you want to sell, just buy DUST at that time. DUST and NUGT can both be traded profitably on a daily basis and at the same time. Upon further reflection, I am thinking about giving DUST and NUGT trading signals on a daily basis and trading both just like Lefty does.
    27 Sep 2013, 10:04 PM Reply Like
  • $DUST
    , contributor
    Comments (59) | Send Message
     
    Wish I could :). Would make so much more $. Trading with underfunded account so I'm limited to 3 day-trades per 5 rolling days. However, getting slowly to that 25k... then it will be fun :P.
    28 Sep 2013, 02:56 AM Reply Like
  • Robert Edwards
    , contributor
    Comments (540) | Send Message
     
    Author’s reply » I hate those insane day trading rule restrictions. It does not help any small trader to battle these markets with one hand tied behind their back. Not letting you trade increases risk rather than lower it. I trade in my IRAs which is great because I won't be cashing them in anytime soon (hopefully) and I don't fret about drawdown like I would in a margin account that had real money in it.
    28 Sep 2013, 10:54 AM Reply Like
  • nicholasvngo
    , contributor
    Comments (2) | Send Message
     
    I bought Nugt at $57.88... and think it will raise to 60 to 61 on Monday as your predicted so i did not sell them. But hey as long as I am still in the game I am not losing yet. I really miss the old day of NUGT of $63-68 day ranges. Robert, what is the highest in the rally range that Nugt can reach? I have 540 shares of NUGT now... could you help me with the prediction
    29 Sep 2013, 11:34 AM Reply Like
  • $DUST
    , contributor
    Comments (59) | Send Message
     
    Yea, I find SEC rules governing day trades so dumb. You can go and lose all your money in a casino in one go, but in trades where you actually do your research and invest with some prudence no. Instead of helping they are just hurting. I actually lost 160$ on a trade because I could not sell due to that dumb rule where's of if I could have would have got 17$ :P
    29 Sep 2013, 06:55 PM Reply Like
  • Robert Edwards
    , contributor
    Comments (540) | Send Message
     
    Author’s reply » U can get out by violating the rule as they cannot stop you from ever getting out, but they call it a violation and restrict your trading for awhile. But you can request they take you off restriction and if it has been 6 months since your account has been reset, they have to reset your account and remove the restriction.
    30 Sep 2013, 07:18 AM Reply Like
  • $DUST
    , contributor
    Comments (59) | Send Message
     
    Yea I know, but I thought I'll rather take a small loss then risk account being suspended for day trades. They account for most of my growth at this point. Following that loss I made 500$ the following trade so I figured I did the right thing. Still, SEC is so useless, just read an article they found concrete manipulation in silver market and their response; "silver is not important in moving the markets" so they did nothing. What's the point of wasting time and money on investigation to begin with then :P...
    1 Oct 2013, 01:28 AM Reply Like
  • justin.zhou10
    , contributor
    Comments (159) | Send Message
     
    Robert,
    It was a great call you went for dust after fed no-taper. I got it wrong and turned a very profitable trade (nugt at 62.5) into a bad one. Averaged down a bit at 50, but gave up last Friday. Could not believe gold up and miners down keep happening. I will jump back if shutdown really happens.
    29 Sep 2013, 11:37 PM Reply Like
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