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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
  • GDX May Go Sideways For 3-4 Days At 50% Fibonacci Retracement Level 7 comments
    Oct 31, 2013 7:04 PM | about stocks: GDX, NUGT, DUST, GLD

    (click to enlarge)

    This is a short instablog to make traders aware that we have nearly retraced 50% of the recent up move in the gold miner ETF (NYSEARCA:GDX) and may trade sideways for 3-4 days before resuming the downtrend. Just look at what occurred in the May/June timeframe in the above chart. We had just over a $4 range from the low $26s to the low $30s as part of a 2 1/2 week rally. We rolled over on June 7, 2013 marked as day "1" above. On the second day we did a harami pattern, then gapped down hard on day "3". That third day was June 11, 2013 and it looks so much like today's action, it has to be the doppelganger to today's Oct. 31, 2013 candlestick. In June, GDX went sideways for four days and then rolled over for seven hard down days. A similar thing could happen now. Just look at the recent pattern and we find we had a 2 1/2 week rally from $23 to $27, a similar $4 range. On Tuesday, May 29, 2013, we rolled over similar to day "1" back in June. Day "2", May 30, 2013, was a harami cross that failed to confirm any bullishness, just like in June. Now today being day "3", we gapped down hard and are trading near the $25 level, which would again be a 50% correction of the recent $4 rally. Therefore I suspect that we might go sideways for 3-4 days if $25 or a bit lower can hold support, before rolling over again. During this time frame, traders might be able to buy DUST at a discount during the up days in GDX. I would not favor buying NUGT but one might slip in some long scalps in GDX if the right conditions present themselves. After about a 4 day reprieve, then expect a resumption of the downtrend in earnest.

    Just for fun I also marked the August/September timeframe on the chart where we got a 2 week rally from $24 to $31 in GDX. Again, after reaching the 50% retracement level, we went sideways for about 5 days before slipping further down. Just something to watch out for.

    Stocks: GDX, NUGT, DUST, GLD
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Comments (7)
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  • $DUST
    , contributor
    Comments (51) | Send Message
     
    Great review. makes me more at ease to have closed my positions and not miss all the ride ahead :P
    31 Oct 2013, 11:49 PM Reply Like
  • AlphaScorpio85
    , contributor
    Comments (12) | Send Message
     
    Robert are you a fan of using options when playing GDX, NUGT, GLD, and DUST? I haven't looked into pricing on any of those symbols yet but it seems as though it wouldn't be a bad idea to take a very small position in puts on NUGT instead of going short to minimize risk. What are your thoughts?
    1 Nov 2013, 01:04 AM Reply Like
  • Robert Edwards
    , contributor
    Comments (413) | Send Message
     
    Author’s reply » I am not so much a fan of buying options but a big fan of selling them. Instead of buying a call, I prefer selling an out of the money put on that same entity. I plan to give some option strategy suggestions shortly.
    1 Nov 2013, 05:45 AM Reply Like
  • Robert Edwards
    , contributor
    Comments (413) | Send Message
     
    Author’s reply » GDX is so bearish right now, we did not stop at the 50% correction level but now fell to the 68% Fibonacci correction level when we hit 24.28 in GDX (low 24.23 so far). Will see if that area provides some support so sideways action.
    1 Nov 2013, 10:30 AM Reply Like
  • Robert Edwards
    , contributor
    Comments (413) | Send Message
     
    Author’s reply » glaserdx correctly pointed out the fact that the next Fibonacci level after 50% is 61.8% and not 68%. When I did the calculation, we were trading at 24.28, which is a 68% correction level which exceeded the 61.8% Fibonacci level at 24.53. When I was in Stock Talk I was busy trading and jumbled the info. all up and then repeated here as a comment without straightening it out. We think we can multitask but when doing too many things at once, we do make mistakes.
    2 Nov 2013, 04:36 PM Reply Like
  • adawg304
    , contributor
    Comments (41) | Send Message
     
    So if I hear you correctly, sideways pattern first, then bearish? I might look to sell bear call spread...?
    1 Nov 2013, 10:24 PM Reply Like
  • Robert Edwards
    , contributor
    Comments (413) | Send Message
     
    Author’s reply » Friday's action hitting a low of 24.02 and closing 24.07 in GDX negates any sideways action. We are now in freefall towards the recent low of GDX at $22.21. I now see us bottoming $1 above to $1 below the $22.21 low.
    2 Nov 2013, 04:46 PM Reply Like
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