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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
  • Gold Should Rally For The Next Three Weeks, Providing Support To GDX & NUGT 12 comments
    Oct 5, 2013 7:49 PM | about stocks: GDX, GLD, NUGT, DUST

    (click to enlarge)

    If you look at the above weekly continuation gold futures chart going back the last couple years, I have identified a pattern quite similar to the current pattern that gold made this very week. They say that every person has a double, someone that looks just them, a doppelganger or ghost, if you will. Well, the same is true with chart patterns. They are often repeated patterns that were seen previously. This week's gold pattern does indeed appear to have a near perfect match, a true doppelganger. Just look at what occurred the first week of April 2012, and compare it to the current action the first week of October 2013. In both instances, the down weeks in gold were the 6th down week following an 8 week rally off a major low in gold. The black real body engulfs the real bodies of the previous two weeks.

    This Portends Three Weeks Of Rally In Gold

    With the matching of these weekly chart patterns, one would expect for there to be a three week rally beginning now in gold, to correspond to the three week rally that followed in April 2012. After this three week rally, gold could begin a slow grind sideways to a bit lower, that will take us to the end of the year. But the low of $1180 should hold, and in fact $1225 should be the lowest price gold trades for the remainder of 2013. Then beginning the first quarter of 2014, I would expect a rally to take us towards $1500 in gold, ending the end of March 2014. Closing at around $1310 on Friday, there is only $85 of downside risk and potential for gold to rally $190 to the upside if $1500 is reached. This is a favorable risk reward ratio since the potential to rally is twice as much as the potential to fall, if I am correct in my evaluation.

    In review, I am looking for a gold futures rally towards $1350 over the next 3 weeks, overtaking the 50 day moving average of $1343. Then gold could retrace to a low of $1225 through the end of December, only to begin a first quarter rally that takes us towards $1500 resistance. If gold does rally over the next three weeks, it should help provide some support to gold miners (NYSEARCA:GDX) and the triple leveraged gold miner ETF (NYSEARCA:NUGT). Here is a chart of GDX:

    (click to enlarge)

    If you look at the above daily chart of GDX, one notices that we are very near major support at $24. In August we hit $24 and then turned abruptly back towards resistance at $28 and continued to a higher high than in July, hitting major resistance at $31. If $25 made support that could bring a rally to $28.50 a couple weeks ago when the Fed decided not to taper, then $24 should really be repulsed with a move higher. The last pop occurred after 3 weeks of down move, matching the 3 weeks of down move that occurred at the end of June. Since the Sept. 18th pop, GDX has fallen 2 1/2 weeks, which is just a couple days shy of another 3 weeks down. Surely GDX turns higher by the middle of the coming week, at the very latest. A pop in gold, GDX and NUGT would coincide with worries that should intensify this coming week, about the upcoming debt ceiling raise deadline of Oct. 17th. The House vote today to pay back salaries to furloughed government workers will ease some of the pressure on getting the shutdown solved quickly, and make a default in less than two weeks more likely. Although the initial impact of the shutdown has been negative for gold, GDX & NUGT, it could change drastically this coming week. A quick 2-3 day pop in GDX back to $26, $27 or even $28, is not only possible, but very likely based on the sharp reversals seen in July, August and September. A pop to $26 (7 1/2% gain), to $27, (11 1/2%), or a move to $28 (15 1/2% gain) are all likely short-term targets. With a Friday close in NUGT of $45.06, factoring in triple moves up of 22%, 34% or 45%, you would see prices of $55, $60, or $65.25. I will finish with a chart of NUGT:

    (click to enlarge)

    Again, if you have not read my article about the dangers of trading triple leveraged ETFs like DUST & NUGT, please click here.

    Conclusion:

    I called for a bottom in GDX a week ago and even though a bullish pattern should have developed, the turn up from the lows has been delayed for a week based on some bearish fundamentals related to the government shutdown and some technical damage that occurred when large traders "ran the stops" in gold below $1300. Well, we are back above $1300 in gold and I believe for the next three weeks we should build on those gains towards a minimum move to $1350. I am looking for corresponding strength in gold mining stocks of GDX and NUGT. So far the reaction to the regular stock market has been quite muted but that could change this coming week. Traders getting out of S&P and Dow stocks will be looking for someplace to hide and gold mining stocks could do just the trick!

    Disclosure: I am long NUGT.

    Additional disclosure: Also long GDX

    Stocks: GDX, GLD, NUGT, DUST
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Comments (12)
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  • justin.zhou10
    , contributor
    Comments (159) | Send Message
     
    Thanks Robert. I kind of bearish in general on the gold. Miners were beaten down really big recently, the reason I want to catch some bounce here. However, my anticipation is miners will bounce a bit (5%-10% something, not big) next week until there is a clear sign the Congress impasse will be resolved; then a selloff, which could push nugt to 40 or even lower level, where is the best place to make bets for the big reversal. Just my 2 cents.
    6 Oct 2013, 12:00 PM Reply Like
  • Robert Edwards
    , contributor
    Comments (504) | Send Message
     
    Author’s reply » I agree with your sentiments exactly, Justin. Great minds think alike, ;o)
    6 Oct 2013, 01:01 PM Reply Like
  • glaserdx
    , contributor
    Comments (230) | Send Message
     
    Robert,
    Thank you for another enlightening article.

     

    Notwithstanding my lack of expertise in these matters, your interpretation of the charts appears logical to me.

     

    I do have reservations about the likelihood of a budget default as a prolonged default could have implications for the $ maintaining its status as the world's reserve currency and don't think politicians want to go there.

     

    But I am looking forward to a NUGT rally and again want to thank you for the article and all your help!
    6 Oct 2013, 01:38 PM Reply Like
  • tfinavia
    , contributor
    Comments (15) | Send Message
     
    Hi Robert, you don't see any possibility of 200 dma touch for $gold and gdx in the next three weeks? That could align with a hard down in market indexes, higher volatility and slight panic implying inflow in $gold, reaching general analyst consensus (such as Goldman Sachs) target of 1450 - 1460 for 2013 gold price.
    6 Oct 2013, 02:43 PM Reply Like
  • akm907
    , contributor
    Comments (19) | Send Message
     
    I am inclined to think in the same terms. If not this month, I am certain that the seasonal demand in gold would raise in India and heavy accumulation in china may give the push to 1400+ in coming weeks.The target for GDX to hit 28 is very much predictable in next 4-6 weeks.

     

    I am not sure about the rally from Jan 2014 to April 2014 you were mentioning. While that has been the typical gold trend and typical stock market trend in past few years I am thinking, the tapering might have negative effect on gold and market as a whole (the usual October to december declines in markets might be seen from jan - april of 2014) and may continue into end of december, corrections.
    6 Oct 2013, 02:46 PM Reply Like
  • njtoms
    , contributor
    Comments (22) | Send Message
     
    Thanks, Robert. Best, Noel
    6 Oct 2013, 03:16 PM Reply Like
  • njtoms
    , contributor
    Comments (22) | Send Message
     
    Nice Analysis, Robert. Thank You. Make Good Sense. Warm Regards, Noel
    6 Oct 2013, 03:17 PM Reply Like
  • Robert Edwards
    , contributor
    Comments (504) | Send Message
     
    Author’s reply » Gold popped $5 to $6 this evening. Dollar a bit weaker as well. We will see if we can catch a bid in gold and miners this week and then go from there.
    6 Oct 2013, 10:25 PM Reply Like
  • Namaste13
    , contributor
    Comments (12) | Send Message
     
    Do you know approximately when NUGT will leverage again? I'm holding shares at$52, 51 and 44.90. Holding for a 3 wk rally based on your prediction seems unsafe for my situation.
    7 Oct 2013, 07:11 AM Reply Like
  • Robert Edwards
    , contributor
    Comments (504) | Send Message
     
    Author’s reply » You should be fine. Gold gets to 1350 plus, GDX should be 25, 26 or higher and 55 to 60 in NUGT. Just a matter of time.
    7 Oct 2013, 09:08 AM Reply Like
  • Namaste13
    , contributor
    Comments (12) | Send Message
     
    Thanks Robert! I'm keeping my faith in a big rally for NUGT! :o)
    Do you hold any gold stocks that are not ETF's?
    7 Oct 2013, 09:31 AM Reply Like
  • Robert Edwards
    , contributor
    Comments (504) | Send Message
     
    Author’s reply » I started buying GDX on Friday. Also buy gold futures off and on.
    7 Oct 2013, 10:19 AM Reply Like
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