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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
  • Today Could Have Been The Low For GDX & NUGT, For Real This Time! 27 comments
    Oct 8, 2013 6:33 PM | about stocks: GDX, NUGT, DUST, GLD

    (click to enlarge)

    Looking at the daily chart of the triple leveraged gold mining ETF (NYSEARCA:NUGT), one should notice that we went down in just 14 trading days from early June to late June 2013, falling from 124 to 45.50. But in July we hit a high of 85.70 and August we hit a high of 106. Then another 12 to 14 down days occurred before we got the two up days around the non-taper Fed decision, jumping from 52.50 to 76 in a few days. With today's smackdown we have dropped another 14 down days exactly! Does this have to be the bottom? No. But it shows that the down move is very extended and is doubly overdue for a rally. If there is any justice in the world, then today was the bottom!

    Today could be the bottom!

    When President Obama gave his speech today, gold got clobbered. Apparently traders are focusing on the deflationary aspects of the current crisis. But when the Dow Jones stocks did their final late date swoon to new lows, I am happy to say that GDX and NUGT came off their lows as aggressive buying came in on the close. This may not mean anything but it could be a sign that short covering is about to begin in earnest. If we are indeed in a crisis, the safest place to be should be the washed out miners rather than the high flying momentum stocks like LinkedIn. The miners fell early this year and they should bottom first and move back up first, when the high flyers are starting their dive down.

    Tell Me Where The Bottom Is, & I Will Tell You The Next High Target

    If you have been following my blog, you know that I have been buying NUGT from 61, down to the current low 40s. By aggressively scalping and repositioning, my trading account made a new equity high yesterday, while NUGT continues to flounder and not rally. Not everyone can trade as often as I do, neither should they be required to. An "overnighter" swing trader should be able to buy into this dip and make a profit on the next rally.

    Where should it rally? Well, just look where we have been. In early June 2013, we topped in NUGT at 124, only to fall to 45.40 by late June. Then in July we hit a high of 85.70, fell back to 50.30, then popped in August to 106. When we were at the bottom in late June, who would believe that 85 would be hit so soon, to be followed by higher high of 106. Last Friday we hit a low of 44.25, but it did not look like a bottom candlestick. Today's long red candlestick with a low of 41.66, does look like a major low bottoming candlestick. If today is not the low, surely Wednesday or Thursday will be "the low" for this move. When it comes, a snap back rally towards 55 in NUGT should come immediately, a small consolidation, and then a move to 60 or higher.

    If today was the low at 41.66, the next high target in NUGT should be 81 initially and 95 to 100 later. If we must drop lower to 40 in NUGT, then maybe we stop at 78 and later 90 on the rally that follows. If we drop as low as 35 in NUGT, the next high should be 75. Stopping at 30, gives us a NUGT target on the upside at 60 to 65. To drop to 30, NUGT would have to fall 30% from today's close. GDX would fall 10% to 21.50, which would be a new 52 week low. Even then, within a month or so, we should be allowed to get out at a profit of 60.

    Conclusion

    Anyone who is long from 61 or lower, should be able to recoup their losses as long as NUGT stops at 30 (30% lower) and GDX bottoms at 21.50 (10% lower than today). Averaging down would of course allow for even lower prices in NUGT & GDX to get to breakeven.

    Some have voiced concern that a settlement might kill gold and the miners but I don't see that as a risk. Since the miners are getting killed during the fiasco, they should recover on a settlement, and not keep falling. This is not Heads I Win, Tales You Lose.

    A golden rule of investing is "Buy The Rumor, But sell the Fact! If a stock rallies on a rumor that they are coming out with earnings or are going to be bought out, etc., the stock rallies on the rumor. Then when the news is announced, profits are taken and it falls back (selling on the fact). In the case of miners, they have dropped precipitously during the current political crisis and that can only be justified on the deflationary aspects of a recession caused by the current crisis. If things are settled, the recession and deflationary cycle is averted and we should rally on the news. Deflation is being priced in now. The inflationary impact of a settlement and recovery should rally gold when Washington gets through the current impasse.

    I have often voiced my distaste for GDX and NUGT, as DUST has performed so well. However, once in awhile GDX and NUGT are so cheap and so oversold, they just scream to be bought. This is one of those times, IMHO. I heard the call a bit early, but I will not abandon my position now. The lower we go, the more I will make when we recover. Gold futures have held up admirably while GDX has underperformed. When gold retests $1425 and $1500, GDX and NUGT will be forced to rally forcefully. At some point, the miners should outperform, instead of underperform gold and I hope to hold NUGT and GDX long enough to witness that. In any case, I am committed to holding for a rally back to 61.

    Disclosure: I am long NUGT.

    Additional disclosure: Also long GDX and buying December Gold futures

    Stocks: GDX, NUGT, DUST, GLD
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Comments (27)
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  • justin.zhou10
    , contributor
    Comments (159) | Send Message
     
    One good news is Yellen will be nominated as Fed chairwoman and nugt is trading at 43.48 after hours. Just relax, guys, watch a movie and eat some popcorns, tomorrow will be a better day.

     

    One thing like to add here is keeping your powder dry, so we could fight another day and be the last ones left standing. We are at/close to the bottom.
    8 Oct 2013, 08:25 PM Reply Like
  • njtoms
    , contributor
    Comments (22) | Send Message
     
    Gold and Other Precious Metals Could Soar on Wednesday. It's Now Confirmed that Super Fed DOVE/Janet Yellen WILL Be Nominated to Succeed Ben Bernanke by Obama. Let's at Least Hope So for NUGT's Sake. This was NOT a Pleasant Day for Me and Other Longs.
    8 Oct 2013, 08:50 PM Reply Like
  • sturgeon333
    , contributor
    Comment (1) | Send Message
     
    just a thought: when the market was sliding, GDX was holding well, only after the sliding was temporarily settled, gold price started to dive. I think the gold was held intentionally to test its resilience to the market ( since there are so many unfavorable rumors about gold future ), once it was confirmed, a tiny part of gold was dumped to initiate the fall, and the market followed due the early tremble, and the result was catastrophic. The buying of GDX at the end means mission completed. Why GDX not NUGT, because GDX can manipulate NUGT.
    8 Oct 2013, 11:33 PM Reply Like
  • akm907
    , contributor
    Comments (19) | Send Message
     
    I am inclined to think in the same terms but the flip side of the story is a little bitter for short term. If Gold were to break into the lower side say to 1240-1260 range, GDX might even see its way below 20$, must warn everyone to look at the DUST chart in this scenario as well. In either case, the rally in NUGT is warranted into 2014. I'll be the first to party when NUGT reaches 60, question is either in 3 weeks or 3-4months.
    9 Oct 2013, 08:04 AM Reply Like
  • Robert Edwards
    , contributor
    Comments (481) | Send Message
     
    Author’s reply » Look at GDX chart and you see that there was a recent high in GDX 31.35, then fell 6.50 to 24.85, & rallied to 28.64 on non-taper Fed news. Subtract 6.50 you get 23.14 and we just hit 23.13. Bottom?
    9 Oct 2013, 10:17 AM Reply Like
  • njtoms
    , contributor
    Comments (22) | Send Message
     
    Robert, Your Math seems a Little Fuzzy and Under-Stated. Not Quite Sure How you Reach Your Conclusions. Please Explain Further. Many People have Hard Earned Money Riding on Your Guidance and Advice. You May Owe Us that Much. No?
    9 Oct 2013, 05:31 PM Reply Like
  • John Tiwari
    , contributor
    Comments (9) | Send Message
     
    28.64 less 6.50 is 22.14 not 23.14
    9 Oct 2013, 11:21 PM Reply Like
  • Robert Edwards
    , contributor
    Comments (481) | Send Message
     
    Author’s reply » Oops. Never mind.

     

    In the heat of battle, just as the low of today was made, I tried to quickly make this calculation and must have hit a wrong key. You are correct. Thanks for pointing this out. Hopefully GDX gremlins never noticed and we hope they don't force GDX to drop another dollar LOL. The percentage drop of 20.73% when it fell $6.50 the first time, would translate to a drop of $5.94 now, which would still be significant, bringing us down to 22.70, which is better than 22.14. Better yet, lets keep the low 23.13, it is low enough already!
    9 Oct 2013, 11:37 PM Reply Like
  • Robert Edwards
    , contributor
    Comments (481) | Send Message
     
    Author’s reply » The above math says that GDX fell exactly $6.50 from a higher price earlier, and then rebounded. It has now fallen an equal amount plus a penny. Starting at a lower level (28.64) vs. original top at 31.35, is a harder feat to accomplish a $6.50 drop since the percentage drop we had now is greater. There is nothing magical about the math except to show that we have suffered an extremely significant selloff and are overdue for a bounce. We did a small reversal back to the positive today in fact. It could be the bottom or we might have to dip one more time but GDX is extremely extended on the downside making purchases of those deep dips (like this morning) extremely profitable. Instead of freaking out and selling out at the bottom, it is a great place to buy more for a quick scalp , get out like I did today, and then keep my original shares to enjoy any further rally.
    9 Oct 2013, 05:51 PM Reply Like
  • Robert Edwards
    , contributor
    Comments (481) | Send Message
     
    Author’s reply » The reason that I count days up and down, is that these things do run in cycles and markets develop a certain rhythm and tune. If you can decipher the musical score of the markets, you can anticipate the next move. It is as much art as science. I just have a knack for doing it and I cannot explain it. I see turns just as they are happening, not later in hindsight like most people note them. I try to anticipate in advance in fact, where do I expect to see a turn.
    9 Oct 2013, 05:54 PM Reply Like
  • tfinavia
    , contributor
    Comments (15) | Send Message
     
    Syncing with the market and deciphering its message certainly provides an ability to spot turns. I can see the turn for today but no volume though in GDX, NUGT had a little larger volume than normal. Good luck!
    9 Oct 2013, 10:01 PM Reply Like
  • Robert Edwards
    , contributor
    Comments (481) | Send Message
     
    Author’s reply » I am not talking about overall daily volumes. I am talking about buy order size increasing on the bid side, vs. sell order size on the ask side. This afternoon bids were large enough to finally intimidate the sell orders, to gobble them up and spit them out. Until yesterday's close and this afternoon's trading, I have not seen any bid size standing up to the relentless selling. Today we went under 30 (hit 29) in the RSI (Relative Strength Index) for GDX and is oversold. Someone must have seen that and started buying. To call for further selling at these low prices, is irresponsible in my opinion.
    9 Oct 2013, 11:18 PM Reply Like
  • njtoms
    , contributor
    Comments (22) | Send Message
     
    "I just have a knack for doing it and I cannot explain it." Robert, I Hope Your Right. Been Around Trading a Long Time. Have seen Many Guru's Crash into Flames to the Ground. Like the God "Icarus." All these People stated: "It's Different this Time." Other Voices might say: "He's Full of Himself." ? "I try to anticipate in advance in fact, where do I expect to see a turn." Your Printed Words. Do NOT Start Telling Us Your All Knowing. Otherwise, Your BS. Let's See Some Results. Not Just Promises of Future NUGT Gains. Bob, I am Sure You can Understand Your Follower's Concerns. No? Thanks/Noel
    10 Oct 2013, 02:47 AM Reply Like
  • John Tiwari
    , contributor
    Comments (9) | Send Message
     
    28.64 less 6.50 is 22.14 not 23.14 ????
    9 Oct 2013, 11:21 PM Reply Like
  • Robert Edwards
    , contributor
    Comments (481) | Send Message
     
    Author’s reply » Error pointed out above. I again say, Oops. Never mind.

     

    In the heat of battle, just as the low of today was made, I tried to quickly make this calculation and must have hit a wrong key. You are correct. Thanks for pointing this out. Hopefully GDX gremlins never noticed and we hope they don't force GDX to drop another dollar LOL. The percentage drop of 20.73% when it fell $6.50 the first time, would translate to a drop of $5.94 now, which would still be significant, bringing us down to 22.70, which is better than 22.14. Better yet, lets keep the low 23.13, it is low enough already!
    9 Oct 2013, 11:39 PM Reply Like
  • justin.zhou10
    , contributor
    Comments (159) | Send Message
     
    Unless we see a breakout that is in the scale of last Aug. rally with convincing volume, caution is still the word of the day IMHO. With ceiling being extended likely, the catalyst for a gold bounce is almost gone. I will be long my first tranche only if nugt goes back to 39-40.
    9 Oct 2013, 11:38 PM Reply Like
  • developer786
    , contributor
    Comments (9) | Send Message
     
    Thanks for taking the time to write up. Jim Rogers think that Gold Won't Bottom Until The Faithful Are Washed Out. http://read.bi/18QSWde http://read.bi/18QSWKg If gold goes down to 1000 then NUGT will be around 15 dollars. right? Will it go through a split at that point?

     

    I have noticed that everyone around me is bearish on gold.. I know from experience that gold crashes whenever people are bearish. John Carter and some hedge funds are predicting 1000-1100 in gold by the end of the month and saying that this upcoming drop will be the last drop big drop this year and it will take many many days for it to recover. I may be pessimistic but these ETF's are made to go to zero eventually. What are your thoughts on this?
    10 Oct 2013, 02:45 AM Reply Like
  • Robert Edwards
    , contributor
    Comments (481) | Send Message
     
    Author’s reply » In every article I write on NUGT or DUST, I try to refer readers to my article warning about the dangers of triple leveraged ETFs. You can click to read: http://seekingalpha.co...

     

    During the 2008 financial crisis, GDX went from 55 down to 16 and then quickly back into the 30s, and eventually back up into the 50s. If GDX went from 24, down to 16 now, that would be a 33% drop and with NUGT it would fall 99% so a person would be effectively wiped out. That is why I say in my article above, anytime someone commits $20,000 out of a $100,000 account in NUGT, one must be prepared to lose the entire $20,000 when such a scenario occurs. However, with another $20,000 employed when the first $20,000 is gone, the trader should have no problem recouping their initial investment. The main reason I got involved with these triple leveraged ETFs (NUGT and DUST) was to educate small traders on the dangers and to let them know what is required regarding money management. The move from 55 down to 23 so far, has wiped out NUGT traders twice, had they gotten in at the top. It could happen a third time if GDX falls from 24 down to 16. It will not happen a 4th time. I will write an article explaining why I don't believe we are likely to drop to 16 in GDX now, without first going back towards 26 to 28. Also, we have had a 3 week selloff in GDX from a recent high, had a couple day reprieve, and then had another 3 week smack down. This current down trend is greatly entrenched and to fall to 16, it would take another 3 weeks of trading or more. The odds do not favor such a bearish move, dropping further without an ensuing rally first. Again, the RSI hit 29 yesterday on the low (below 30) and we are extremely oversold at this time.

     

    Now, regarding the bearish analysts. In April of this year, analysts were upbeat and extremely bullish. Yet gold plummeted all the way down to $1180. At the bottom, everyone turned bearish, and started making dire predictions. Those predictions scared out most bullish investors from buying. So what do we do? We rally $248, up to $1428. By that point analysts turned bullish again, calling for a move to $1500 and higher. But there we topped out and started the drop back down to $1280. Instead of calling for a large sideways consolidation from $1200 to $1500, the most likely scenario for gold into the future, analysts are instead extremely bearish. They are calling for a move to $1100, $1000, or lower. Regarding the current Washington political fiasco, they are bearish if they don't come to an agreement, and more bearish if they do settle. Well, they can't have it both ways. There has to be a bullish scenario somewhere.

     

    I am not saying we cannot have a bearish scenario where gold goes to $1100 or $1000 at some future point. However, I do not see that happening at this time without a significant rally first. I cannot see GDX falling from 24 down to 16, without first reducing the current oversold condition with a rally back to 26, 27, 28 or higher. I will write more on this in my article.

     

    Regarding Jim Rogers, let me remind you that Mr. Rogers repeatedly remarks that he is not a timer of the market and makes no predictions. He is successful through scale trading. Buying a little now and a lot more when the bottom does occur. Gold is not washed out but the gold miners are extremely washed out. To say that have to become even more washed out without a rally first is stretching the rubber band beyond its limits and breaking it. I see the washout completed and a rally in GDX to begin anytime.....like yesterday!
    10 Oct 2013, 08:06 AM Reply Like
  • developer786
    , contributor
    Comments (9) | Send Message
     
    Thanks for clearing the misconceptions. Looking forward to your articles.
    10 Oct 2013, 04:38 PM Reply Like
  • developer786
    , contributor
    Comments (9) | Send Message
     
    I agree with you comments. Thanks for giving hope to your followers. NUGT/GDX/ $DJUSPM didn't break yesterdays lows which is bullish for NUGT. If GDX and $DJUSPM closes below the lowest level for two days then all bets are off. We survived today i think :) Congrats
    10 Oct 2013, 04:38 PM Reply Like
  • Robert Edwards
    , contributor
    Comments (481) | Send Message
     
    Author’s reply » Inside day down close today, which is bullish. Should have an up day on Friday, bottom overdue. Opening pop to upside would also be nice, not been that strong on open recently.
    10 Oct 2013, 04:57 PM Reply Like
  • rodh7858
    , contributor
    Comments (138) | Send Message
     
    Rob: I think quite a few of us have been religiously following you; accumulating NUGT slowly spread overtime; following your guidelines but are still badly stuck. This is really disheartening. Would you recommend holding over the weekend in such a situation where you are already in RED?
    10 Oct 2013, 06:04 PM Reply Like
  • Robert Edwards
    , contributor
    Comments (481) | Send Message
     
    Author’s reply » It always looks the darkest right before the dawn. I cannot tell you what you should do. I can only say that I will be staying with my core position and working on a move in NUGT back to 61. I cannot guarantee anything. I am hopeful that we have already seen the bottom in NUGT. But if I am wrong and we have to continue down, I do not see NUGT trading below 30. If I am right and 30 is the low, 61 on a rally is in the bag! I will play this move until the end!
    10 Oct 2013, 06:14 PM Reply Like
  • justin.zhou10
    , contributor
    Comments (159) | Send Message
     
    The good thing is that short selling by the big guys stopped in past 2 days. GDX outperformed each day. If this continues, we could see a bottom forming. With gold at 1286, it could go to 1200, last time when gold at that level, miners stopped falling and bounced off violently even gold continued drop to 1180.

     

    If 1200 is this year's target, hopefully with physical demand as support, gold could have a chance to bounce off low and lift up miners in some big way. Still caution is warranted to see if miners could outperform gold in the next several critical weeks.
    10 Oct 2013, 08:45 PM Reply Like
  • Robert Edwards
    , contributor
    Comments (481) | Send Message
     
    Author’s reply » This is the seventh straight down week in GDX. It is hard to find down moves lasting more than 8 weeks without having at least a few sideways to higher weeks thrown in. On a very short-term basis, the RSI under 30, GDX is getting ridiculously oversold! NUGT bottom is surely close.
    10 Oct 2013, 08:48 PM Reply Like
  • alphav
    , contributor
    Comments (7) | Send Message
     
    Looking back at your article in retrospective, NUGT broke the $30 resistance. I had been averaging down from $70 and bought more at $25 and then finally sold them all today taking capital losses into next year. Any thoughts on junior gold?
    31 Dec 2013, 07:27 PM Reply Like
  • Robert Edwards
    , contributor
    Comments (481) | Send Message
     
    Author’s reply » NUGT got back within 12 cents from $60 right after this October article. We finally did get our rally. However, on weakness I started buying again in NUGT around the $45 area and my average price is $41 and I am still holding for a move back to $50.
    31 Dec 2013, 09:16 PM Reply Like
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