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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
  • The Gold Miner ETF (GDX) Bounced Off New Lows, Now What?! 15 comments
    Nov 25, 2013 10:46 PM | about stocks: GDX, NEM, NUGT, DUST, GLD

    (click to enlarge)

    Take a look at today's candle. On 6/26/13 GDX hit the lowest price it had hit since 2008 at $22.21. Last Thursday and Friday we traded within a couple ticks of that low. With February 2014 gold futures on the COMEX making a new low of $1226.40 overnight, thanks to another super large sell order being placed at 1:00 a.m. EST, when liquidity was at its lowest, the miners were lower in the premarket, and today, Monday, 11/25/13, stops sitting under the GDX yearly low were filled on the opening at $21.85. I happened to see the gold fiasco trade as it occurred. I did not check the December gold contract, but the less liquid February 2014 gold futures contract traded over 500 contracts almost instantly, dropping the market over $10 and causing a 10 second stoppage. It is quite interesting that after the break, gold reopened $7 higher and although the low was tested a couple times, it was never violated. The market manipulation dreadfully failed this time, unlike what occurred last Wednesday, 11/20/13, twice in the premarket and once after the Fed minutes were released, when massive sell orders overwhelmed the markets and moved the markets decisively lower.

    Anyway, back to GDX, after a brief rally to $22.11 was turned back, GDX bottomed at $21.52, making a new low by 69 cents. When gold worked back to unchanged the miners remained stubbornly weak, but eventually rallied to the positive, filling the gap, but closing down 5 cents. Closing down it is a red candle but we closed off the lows as predicted. The only recent candle that looks similar to this, occurred on 9/24/13, and the following day GDX rallied up 92 cents to $26.00 and closed up just 44 cents. That candle only helped GDX rally just one day before the downtrend resumed.

    I was going to post a chart showing GDX in the second half of 2012. On three occasions we had a similar pattern as today and each time a low was scored. In July 2012, GDX rallied just one day before rolling over for 7 days but the original day's low was never violated and then a major rally occurred. The other two times we rallied 2 days and 4 days before retesting the low which held for several days again. What this makes me conclude is that today's action in GDX marks a low that may be retested in 1-3 days possibly but ultimately should provide support for an eventual rally to higher prices. Please take a look at the Newmont (NEM) mining chart:

    (click to enlarge)

    If you look along the bottom of the chart, back in early July Newmont Mining hit a low of $26.26 and rallied to $31, then in August hit a low of $26.22 and rallied back higher to $34. On October 9th the low was taken out when NEM hit a low of $25.81 and closed up. NEM would fall right back down and make a new low but finally bottomed at $25.33 four days later on October 15th, and rallied back towards $29. That low held until today when a new low of $24.68 was hit and we again rallied back to form a hammer, closing at $25.53. Today could be the low, or we could be 1-4 days from the ultimate marginal new low on this move, but it would appear today's bullish hammer candlestick pattern is pointing us to a major turn and higher prices for NEM. Once we turn, I would expect a quick rally of $3 to $5 off the low. Now lets take a look at the triple leveraged bullish gold mining ETF (NUGT) daily chart:

    (click to enlarge)

    How high could we pop in the next day or two in NUGT? Well, when GDX bottoms it tends to rally $2 off the lows before hitting resistance. Today's low in GDX was about $21.52 and closed $22.20. It should work for a $2 rally off the lows to $23.50. That was the area GDX tried to hold following the Fed minutes announcement last Wednesday. A rally of $1.30 in GDX would be 5.8% which works out to 17.5% in NUGT. Since NUGT closed at $32.56 today, NUGT could rally quickly towards $38.28. Another target would be if GDX only rallied $1 tomorrow morning, or about 4.5%. In NUGT that would be 13.5% higher, or a price target of $36.95. It would appear that if someone was so inclined to dump some of their NUGT shares on some short term strength, one should be able to sell between about $37 and $38.25 if GDX can rally back just $1 to $1.30 tomorrow on the high. Depending on how gold performs (currently trading above the old $1251 support as I type now) and how well the miners can rally over the next day or two, I plan to dump up to 1/2 of my NUGT shares, especially if I can get $38 or more. I will then have money freed up to buy the shares back should we trade back under $30 again. Today's action in the miners and gold's rejection of lower prices should provide at least one to two days of strength to help one reposition out of shares. In addition to dumping some NUGT, I will sell out of some GDX shares that I was exercised on. I have a good number of $23.50 GDX puts that have an effective price of just under $23.20 after accounting for the 30+ cents premium received. I want to dump some of these shares to free up cash to buy back on any weakness.

    Disclosure: I am long GDX.

    Additional disclosure: Also long NUGT & NEM

    Stocks: GDX, NEM, NUGT, DUST, GLD
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Comments (15)
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  • I should have listened to you when you said buy DUST weeks ago. I hope you're right about this buying opportunity in GDX. I added AEM as I value it more than NEM, but good luck nonetheless.
    26 Nov 2013, 01:58 AM Reply Like
  • Author’s reply » we have bullish seasonals thru thanksgiving holiday thru Monday 12/02/13 at least that could b helpful and r extremely oversold and overdue for a bounce.
    26 Nov 2013, 04:22 AM Reply Like
  • LOL I wanted to get into DUST when it was at 31$, but then made over 600$ in one day in NUGT and left 20 shares over the weekend. Well, we all know what happened next, lost 3x that trying to reposition those 20 shares where I should have dumped them and went to DUST. Lesson learned the hard way. Early stop loss and greed kills.
    Still, in profit overall going by Rob's advise though.
    26 Nov 2013, 11:04 PM Reply Like
  • $GDXJ is down 65% this year 74% from 2 years ago and 81% from 3 years ago. How much lower can an entire sector go???
    26 Nov 2013, 10:20 PM Reply Like
  • Robert, still holding nugt from 43. at this level, it's very depressing. what do you see in the coming weeks? how long it takes nugt to get back to 40s?
    26 Nov 2013, 10:25 PM Reply Like
  • Author’s reply » Those patient enough to hold thru last selloff from 60 down to 37.83 were able to get out NUGT at 59.88. Should be easier now getting out since u are in at 43. Even if we fall to 21, u should get out at 45 if u can hold thru the bottom. Previously, those who bot at 81 low, and support broke and fell to 45, could sell out at 85 then return to 45, then back over 100. Again patience.
    27 Nov 2013, 07:50 AM Reply Like
  • My view, if gold refuses to dip much below 1240's and holds this level long enough while bears struggle to beat it down, we could see NUGT rally quite soon (though most likely not sustained much above high 30's to low 40's). However if it breaks 1210, I think we might have a possibility of gold rolling of its tracks into 1100 area, which spells nothing good for NUGT. Market psychology would ensure that. Though after that you have only one direction to go from. So if you can endure it, probably hold it, but be ready for bigger pain before some relief. I was not able to endure it just cause I'm a small player, even though everything inside me told me to hold.
    That's my 2c, wish you guys best of luck, I still hope to catch the ride back up.
    26 Nov 2013, 11:18 PM Reply Like
  • Author’s reply » Gold hit such a major low when it stopped falling at 1180, it was able to rally back to 1427. This is the first real retest of the 1180 to 1200 support. The first retest of the low should cause a rally of 100 or more and hold, IMHO. The next retest after that should hold. Only the 3rd or 4th retest of this major low can cause a breakdown like you envision. Fear of that breakdown has caused a veteran like myself in the past to get out at the bottom. That is why I am fearless of the bottom. One has to be to successfully trade gold. When I stopped fearing, I started winning and have done quite well in gold overall.
    27 Nov 2013, 07:54 AM Reply Like
  • Robert,

     

    I've been keeping my nerve with the continued sell off, I'm not clear based on the above analysis whether you're recommending selling off NUGT at the recent resistance level near $37-38 given the likelihood of a retest back down to the 30 dollar level. Would prefer to hold NUGT and try to make this position pay off rather than take a loss and then trying to catch NUGT at the retest of it's low if I'm understanding your reasoning. Holding 1000 shares NUGT with average price of $42. Thanks as always for your analysis, hard work, and encouragement.
    27 Nov 2013, 10:04 PM Reply Like
  • Author’s reply » I mentioned I was considering selling out my low priced shares at a profit at $38 plus to reduce my exposure. My entire position is in at just under $41. I am holding my position, waiting patiently for a rally. We have stopped going down, as we r in a major support area. Now we need to start going up. As soon as Feb. 2014 gold decides to work back up towards $1300, resetting $1251 as support NUGT should be moving up nicely. Till then, we wait.
    27 Nov 2013, 10:22 PM Reply Like
  • Wow, thanks for the prompt response! Have a great holiday...

     

    John
    27 Nov 2013, 11:00 PM Reply Like
  • John,

     

    you are in a better shape than me. i am holding 6000 at 43. Robert is really really helpful. it will come back.

     

    good luck to you. and follow Robert.
    :)
    28 Nov 2013, 05:11 PM Reply Like
  • Robert, what are your thoughts on decay? I have no doubt gdx and gdxj will come back, but when you look at decay it's crazy. That's what makes me panicky. Look at gdx low in June then look at what nugt was around 50 ish. Now gdx is close to the June lows and nugt is almost half of that near 30. That occurred within 4 months.
    1 Dec 2013, 01:58 PM Reply Like
  • So, Rain Man 1 has DUST Decayed? Now in the 40's? What You say to That?
    1 Dec 2013, 09:10 PM Reply Like
  • Author’s reply » Although it is a very bumpy ride, NUGT can recover back to $50 or higher, as I described in the following article: http://seekingalpha.co...

     

    Regarding the slippage. There is indeed 10% monthly slippage to contend with. I explained this in the following article http://seekingalpha.co...
    2 Dec 2013, 04:00 AM Reply Like
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