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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
  • Good News For Gold Miners: Bullish Harami Pattern In GDX & NUGT Weekly Chart Projects Significant Rally  21 comments
    Dec 14, 2013 6:19 AM | about stocks: GDX, NUGT, DUST, GLD, NEM, ABX

    (click to enlarge)

    If you click here, you will get an explanation of the Bullish Harami pattern by Investopedia. Looking at the weekly triple leveraged gold mining ETF (NYSEARCA:NUGT) chart above, one will notice that we were in a downtrend with the previous week's candle a long red candle. However, this week we just completed a candle with a small white body that is within the previous range of the red body of the previous week. In Japanese, Harami means pregnant. The small white body (baby) that was formed this week, projects a reversal to the upside. Better yet, the smaller the small white body is, the more likely the reversal. The small white body (baby) as seen in the chart, is quite small as the opening and closing price of the week is nearly the same. If it was any smaller it would be a Doji. This has extremely bullish implications.

    Looking at the chart above I made a black triangle under this week's candle. Counting back eight weeks, you will notice I marked another triangle as that was another bullish Harami pattern that projected a rally that did occur the following week. Continue back and you will see many triangles and each Harami pattern projected a rally that did indeed materialize. On weekly charts, one can see that Harami patterns are extremely reliable bullish indicators. This is extremely good news for NUGT holders.

    But it gets better. In a previous article posted on December 3, 2013, click here, I explained in the last paragraph that when NUGT breaks down and makes a new low, when it recovers, it rallies high enough to allow the buyers of the last low out at a profit as well as those who bought at the previous low. The following table illustrates this point:

    Previous LowCurrent LowRally High
    $96$81$124
    $81$45.50$106
    $45.50$37.83$59.87
    $37.83$24.71??? $50 ???

    Anyone who got long at the low of $37.83, even though we have fallen as low as $24.71, if they hold out for the next rally, the previous data would project a rally to $50, if we rally a similar percentage above the previous low, as we have in the past.

    Now returning to the chart at the beginning of this instablog article, one will notice that I drew horizontal line below the $81 low NUGT made in May 2013. The third week of June, the low was broken with a long red candle, and I marked that week as week #1 on the chart. The next couple weeks we also dropped, and they were marked as week #2 & #3. Then the next week, marked as #4, NUGT did a bullish weekly Harami pattern. A couple weeks later, in week #6, the rally to $85.70, let anyone out who bought at the last low ($81), and in week #9, finally those who bought at the previous low ($96) could get out on the rally to $103, and two weeks later, again at $106.

    Now move along to October and notice that I drew a horizontal line under the $37.83 low. Notice that in the middle of November, the support was broken and I marked that red weekly candle as #1. Again we continued lower for another couple weeks, #2 & #3. Then this week, in week #4, a bullish Harami pattern appeared right on schedule. If we repeat the previous pattern, one would expect a rally above $37.83 within the next couple weeks, and a move to $50 in NUGT, three weeks later.

    Disclaimer:

    The thoughts and opinions in this article, along with all stock talk posts made by Robert Edwards, are my own. I am merely giving my interpretation of market moves as I see them. I am sharing what I am doing in my own trading. Sometimes I am correct, while other times I am wrong. They are not trading recommendations, but just another opinion that one may consider as one does their own due diligence.

    Disclosure: I am long NUGT.

    Additional disclosure: Also long NEM & GDX

    Stocks: GDX, NUGT, DUST, GLD, NEM, ABX
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Comments (21)
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  • njtoms
    , contributor
    Comments (22) | Send Message
     
    I would love to believe Your TA, but over the last 5-6 weeks You've been Totally Wrong. I Mean Dead Wrong. It's the Truth.
    14 Dec 2013, 10:52 AM Reply Like
  • Growfast
    , contributor
    Comments (275) | Send Message
     
    NJ - Why isn't your approach one of a position of us all working to learn together? Don't you think this would be more effective in approach since comments like the one above and others I commented on before, do not add any value to us on this thread learning from, with and contributing to the learning with RE?

     

    You are the only one on these threads who is not taking a curiosity, questioning and learning approach - with recognition to what RE has communicated, that even as much knowledge as he has, he is still learning. And, he has also stated that no matter how much you know, markets can still have occasion to make one frustrated - especially in the short-term.
    14 Dec 2013, 11:17 AM Reply Like
  • Robert Edwards
    , contributor
    Comments (483) | Send Message
     
    Author’s reply » On the thread you mentioned that it is about time we saw some results. I cannot make GDX perform a certain way. I can only say what is expected based on probabilities. Probabilities dictated that GDX did not need to make a new low. But the markets chose otherwise. I predicted that if a new low was made, it should not be by more than 75 cents to $1.50. And $20.00 should be the worst. Well, GDX stopped at $20.56 and then at $20.51, and from $22.21, the new low was $1.70 lower ultimately. Well, within a normal margin of error. I came up with an analysis to project the next rally price of NUGT being $50. I said that if we make a dip the trip down for NUGT would be nasty and it has been all of that. We were oversold a couple dollars higher in GDX and we have only extended the bottom slightly. GDX was a buy $2 higher and even more of a buy now. The rally will come when the basing action is complete, and no one can predict the exact moment of the turn.

     

    However, the ultimate goal is still a price higher than the second oldest low, that being $45.50. It is too early to say if I was wrong on this score. If I get this one right, and we trade above $45.50, whether or not $50 is ever seen, then you have to say that I was right. The jury is still out for now, so it is best that you, Noel, not keep casting judgment prematurely. Your comments are way past the point of annoying for me, but especially for others who are trying to learn something here.

     

    Every day that I trade, I project an expected range and project what I expect to happen. Once trading begins, I watch for signs and clues to tell me how strong or weak the market is. At the end of the day I project if the next day will be up or down. When the markets trade according to the projections it is nice, but I learn more when the market does something completely different than expected. This whole exercise of buying and holding a leveraged ETF is a grand experiment. I may ultimately conclude that one cannot successfully hold these leveraged ETFs more than a day or two. It is still premature to make that decision. This is not about Robert Edwards. If it turns out that Robert Edwards cannot trade NUGT, successfully, then it probably bet that they cannot be traded long term.
    14 Dec 2013, 11:48 AM Reply Like
  • bobzic
    , contributor
    Comments (102) | Send Message
     
    $NUGT : Robert, do you think it is possible to see a 60+ in NUGT during the next 2 months.
    14 Dec 2013, 10:54 AM Reply Like
  • bobzic
    , contributor
    Comments (102) | Send Message
     
    $ NUGT : Nice article, Robert, Thank you.
    14 Dec 2013, 10:54 AM Reply Like
  • sszaheer
    , contributor
    Comments (3) | Send Message
     
    Thanks Mr Robert for sharing this new article with excellent analysis. I agree this is the bottom for NUGT and gold will remain above 1200 for next few weeks and NUGT will be up by Tuesday/Wednesday.
    14 Dec 2013, 10:55 AM Reply Like
  • Growfast
    , contributor
    Comments (275) | Send Message
     
    RE - Great article and analysis as always. Looking back for lessons learned and improvements, what triggered us to be strong buyers in October before the reversal to the uptrend really took hold? Did we get a fake signal? Were we just bullish and not watch the indicators? From the chart in October, I speculate we got in for the minor rally around the white candle, but that rally was smaller and shorter-lived than what we all expected.

     

    Now this analysis seems to indicate we are strong bullish off the Harami pattern. Was there a way to know in October, considering the known downward pressure on Gold and the Miners from TA, that we would be better off holding out for a stronger bullish signal like now before making the big entry? Perhaps this will have effect on the trading rules we'll be working on.
    14 Dec 2013, 11:12 AM Reply Like
  • Toastypro
    , contributor
    Comments (398) | Send Message
     
    Great TA. I see the bullish signs all over in gold for next 10 days and beyond. One of the stock to own for 2014 is ABX according to the Barron's 2014 Top 10 Picks.
    14 Dec 2013, 11:29 AM Reply Like
  • glaserdx
    , contributor
    Comments (212) | Send Message
     
    Robert
    Very through and fascinating analysis. By contrast, American Bulls has a SHORT signal on NUGT-- http://bit.ly/1bF9t1P
    and they have been wrong recently--or it may be they have a shorter time horizon, i.e.days not weeks so it may be there is a few more weak days in NUGT...?

     

    In any event, your analysis is much more compelling that ABulls.
    I continue to learn from you and others on the site and am glad to be participating in this "grand experiment".
    14 Dec 2013, 02:17 PM Reply Like
  • Robert Edwards
    , contributor
    Comments (483) | Send Message
     
    Author’s reply » Americanbulls.com is experimenting with a new strategy where they go short when they get stopped out of a long position (reversing). Time will tell if it works. They went short as they got two low closes. I believe it is a very short-sighted move and in a day or two they will take a loss on their shorts and be going long again. At turns like we are at, gets choppy and almost any system gives bad signals until we finally turn for good and start a new trend.
    14 Dec 2013, 04:04 PM Reply Like
  • cnype
    , contributor
    Comments (10) | Send Message
     
    The good thing about American Bulls is the fact that it is all mechanical... no emotion to second guess any signals.

     

    You can tell that it has been very successful with NUGT and DUST in the 6-mo, 1-yr and 2-yr timeframes.

     

    I am trying to use a system that includes the use of three separate signals. Only when all three of them are giving a green light will I get involved in a trade.

     

    One is the American Bull candlestick signal (I sometimes try to get a better price than the "confirmation," to avoid the choppiness), two is the RSI/Stochastics, and three is how close the price is to the upper or lower Bollinger Bands.

     

    Also, when I get into a trade... I use the American Bulls stop suggestion... it has saved me from losing a ton of money. Otherwise I would probably hold onto a losing position, trying to average down and convert it into a winning position. It doesn't always convert. Even if you eventually make it back to breakeven, you have missed out on a lot of other good opportunities by keeping your money tied up in a losing battle. NUGT's been a prime example of that lately.

     

    I will get involved in NUGT again, but will need to see a bullish pattern on American Bulls first.
    15 Dec 2013, 02:59 AM Reply Like
  • rodh7858
    , contributor
    Comments (138) | Send Message
     
    Cnype - You said "Also, when I get into a trade... I use the American Bulls stop suggestion". But I don't see any stop suggestions for any of the stocks when I check American Bulls. I am not a member, is stop info for members only?
    16 Dec 2013, 01:33 PM Reply Like
  • glaserdx
    , contributor
    Comments (212) | Send Message
     
    Thanks for the explanation - no wonder ABulls keeps vacillating
    14 Dec 2013, 04:17 PM Reply Like
  • Growfast
    , contributor
    Comments (275) | Send Message
     
    cnype - Interesting on your 3 signals. For each, what exactly do you look for in order to determine it is giving a bull signal?

     

    1) candlestick - White? Length? other parameters?
    2) RSI - Look for it to be at the lower end (30) and starting to turn?
    3) Bollinger Bands - Looking for bounce off the low band? How do you frame this for bullish, versus risk of continuing lower and moving outside the lower band?
    15 Dec 2013, 04:20 PM Reply Like
  • cnype
    , contributor
    Comments (10) | Send Message
     
    1) American Bulls gives the pattern first, and then confirmation second... sometimes I initiate a position after the pattern (trying to get a position right above the given stop), and scale up after confirmation. When I do this, I run the risk of never getting the confirmation and getting stopped out, but I think avoiding the choppiness of the system is worth the risk.

     

    2) RSI and stochastics have to be screaming oversold... The exact level depends on the stock. Some stocks never get really oversold, so I have to use previous history to find the "oversold" level for that specific stock... its usually around 30... but sometimes less. I really don't feel comfortable if its more. Same for stochastics (I use both fast and slow), but they will usually go oversold more than RSI will.

     

    3) Bollinger Bands... if its below the lower band, great! But I look for it to be at least riding the lower band... Don't feel comfortable unless the latest candlestick is at least touching the lower band.

     

    Note) I limit "averaging down" strategies only to stocks I don't mind holding for the long term... I did average down on NUGT once and got burned. I personally think gold prices will continue to slide for the next couple years... that combined with the leverage decay makes me really uneasy holding NUGT for more than a week or two.
    15 Dec 2013, 08:45 PM Reply Like
  • Growfast
    , contributor
    Comments (275) | Send Message
     
    cnype - thanks for the information. That really helps. I assume you mean a white candlestick occurs on the chart at the point the lower band it touched on the Bollinger band.

     

    I will have to watch for this pattern in the future on positions to see how it plays out.
    15 Dec 2013, 09:26 PM Reply Like
  • cnype
    , contributor
    Comments (10) | Send Message
     
    Yes... American Bulls won't give the confirmation unless it is a white candlestick.
    16 Dec 2013, 01:30 AM Reply Like
  • Growfast
    , contributor
    Comments (275) | Send Message
     
    RE - I pulled a chart on NUGT today and I don't see a bullish Harami pattern. My chart shows the following:

     

    1) 12/11 - a long body red candle
    2) 12/12 - a white candle (below the lowest end of the red candle from 12/11.
    3) 12/13 - a small red candle

     

    The above does not create a Bullish Harami. Am I missing something? This doesn't change what I think the direction of Gold and NUGT are in time, but it does make me question why my chart doesn't reflect a Bullish Harami you see.
    15 Dec 2013, 09:44 PM Reply Like
  • rodh7858
    , contributor
    Comments (138) | Send Message
     
    Grow - Sounds like you are looking at DAILY charts of $NUGT. As Rob mentioned in the title of the article and also showed in the chart he is referring to bullish Harami pattern in the WEEKLY charts.
    15 Dec 2013, 10:38 PM Reply Like
  • Growfast
    , contributor
    Comments (275) | Send Message
     
    rodh - Thanks! You are correct. I missed that and will go back to study the weekly chart.
    16 Dec 2013, 11:11 AM Reply Like
  • akm907
    , contributor
    Comments (19) | Send Message
     
    I am not seeing big rallies in nugt/gold until jan. just looking at past runs. expecting flat, not going widely low below from where we are now. nugt is due for a rally to 40 at-least, might happen in jan/feb.
    16 Dec 2013, 02:48 PM Reply Like
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