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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
  • Where Are Gold & The Miners (GDX & NUGT) Heading In 2014? Much Higher! 8 comments
    Dec 30, 2013 10:10 AM | about stocks: GLD, NUGT, GDX, DUST, NEM

    (click to enlarge)

    In the very short term, we are likely heading higher. Above is a weekly chart of the gold mining ETF (NYSEARCA:GDX). A couple weeks ago, I wrote an instablog article explaining how we scored a bullish Harami pattern that projected higher prices, click here. Instead of rallying, we did a bearish engulfing pattern, going back down to the lows. After making the most minimal marginal new low, this past week we now completed a bullish engulfing pattern on the weekly charts. This negates the bearishness of the previous week and puts us back onto a path of strength for the next 2 to 6 weeks.

    For the past four weeks, GDX has valiantly defended the $20 support level and should continue to do so until we rally to the $25 to $26 level or a bit higher on short covering. Lower prices have been rejected and it is a matter of time before some unknown bullish catalyst catapults the miners to higher prices. A move of 20% higher in GDX would be a 60% rally in NUGT and take us from the high $20s to the low $40s.

    Gold Should Begin Rallying Higher By The Middle of February 2014, With Much Stronger Prices the Second Half Of The Year

    (click to enlarge)

    The above chart has the Dow Jones chart on the top and gold on the bottom, going back to 1980. Gold made the big parabolic rise in 1979 and topped out in January 1980, at the very beginning of the chart above. Gold fell from the January 1980 peak of $834, to a low in June 1982 of $301.50. That was a 2 year and 5 month bear market. More recently we have topped out again in September 2011. During the more recent topping action, we never experienced a parabolic rise into the $1900 summit. Most technicians believe that a parabolic rise above $2500 is still in gold's future. At the very end of the decade long bull market in gold, one should not top out for good without having a blow-off parabolic rise at the end, just like we experienced in 1979. Surely that parabolic rise in still in our future so the $1900 level is surely not the ultimate high that we should see in the next few years.

    Anyway, if the current bear market lasts an equal 2 years and 5 months like the 1980 to 1982 bear market, it would project a bottom in February 2014. The bottom could come a bit earlier or later than February 2014, but it shows how we are in the 9th inning of the current bear market and the bearishness should soon end. It is not surprising then to find others such as Hebba Investments, calling for a bottom in January 2014. If you did not catch the article, click here. I pretty well agree with all the points made in the Hebba Investments article. The only difference is that I am hopeful the recent low of $1188 in gold will hold and then the June 2013 low of $1180 would turn out to ultimately be the bottom of the bear market.

    Again, if we should make a new low in gold, I feel quite strongly that the very worst case scenario is a bottom at $1155. I say that because after a bear market goes on for 550 trading days or longer, it never makes a new low by more than 2% based on past experience, as I explained in a past article, click here.

    Brokerage Firms See Gold Basing In The $1155 to $1250 Range In 2014

    For a table to see where gold prices are predicted for 2014, click here. Most analysts are predicting a 2014 gold price in the $1150 to $1250 range. Only Goldman Sachs is low at below $1000 in the near term and $1144 for the year. GS predicts an end of year price of gold of only $1050. But Goldman Sachs is heavily long the ETF (NYSEARCA:GLD) and will surely flip to the bullish side as soon as they accumulate enough shares.

    Based on past bear markets and various long term cycles, any weakness in the first half of 2014, should be corrected with higher prices in the second half of 2014. I am looking for $1450 as the minimum end of 2014 gold price and am hopeful we could end the year as high as $1650.

    Where Gold Is Likely To Trade In The Next Few Years

    (click to enlarge)

    The above chart is from an article by Simon Drake, you can read here. He sees the worst case scenario of 2014 gold prices averaging $1200. I agree.

    Disclosure: I am long GDX.

    Additional disclosure: Also long NUGT & NEM

    Stocks: GLD, NUGT, GDX, DUST, NEM
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Comments (8)
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  • bobzic
    , contributor
    Comments (79) | Send Message
     
    Thanks again for this interesting article.
    30 Dec 2013, 03:40 PM Reply Like
  • user878
    , contributor
    Comments (108) | Send Message
     
    Robert,
    which way you lean more in the near future: a 2% drop below June 28 lows or just a rally from now on?
    If it is rally, do you expect all time high to be hit again in 2014 or way beyound?
    What makes you believe that GDX will hold support of $20.xx?
    30 Dec 2013, 08:50 PM Reply Like
  • Robert Edwards
    , contributor
    Comments (461) | Send Message
     
    Author’s reply » I still lean towards a rally from here without having to make the dip below the June low. However, with today's drop we are not that far away from the bottom. We need to move quickly back above $1200 in gold. I believe 2014 should hit a target of $1450 minimum, $1650 probably maximum on high end.
    30 Dec 2013, 11:22 PM Reply Like
  • user878
    , contributor
    Comments (108) | Send Message
     
    Another question,
    You mentioned that most analysts like GS, Citi, UBS and others are bearish. How you justify being contrarion and believe gold will hit at least $1450 in 2014?
    In other words, what benefit will have those analysts by providing a wrong prediction, don't you think this will be against their credibility?
    30 Dec 2013, 11:46 PM Reply Like
  • Robert Edwards
    , contributor
    Comments (461) | Send Message
     
    Author’s reply » Look at the wild predictions they were making a year ago. We were supposed to top $2000 with most looking for prices around $2500. They were dreadfully wrong then (way too bullish) and are probably dreadfully wrong now (way too bearish). Not siding with the crowd is where I want to be for sure!! Their track record is horrible.
    31 Dec 2013, 12:00 AM Reply Like
  • Lumia_920
    , contributor
    Comments (88) | Send Message
     
    Robert ,You might be already aware that you will be asked lot of question after this article. I am been a regular follower of your article on Gold/miner stocks. Gold price prediction failed badly in 2013. Even though 2014 doesn't look promising but still my target is 1,350. I am holding NUGT at $33 (I sold NUGT bought at $27 at $28.30). One reason of selling NUGT is I am not confident on the future of this stock for next 3 months and if there is a reverse split I might loose lot of money. So I have minimize my risk. At an average it take 4 years for gold/miner stock to reverse the pattern. We already completed 2.8 years and I see 2014 as a consolidation year.
    Question for Author :
    1. Are you planning to add NUGT ?
    2. If yes,what is the price target?
    3. Where do you see bottom for NEM?
    4. Will GDX be an excellent buy at $17?
    5. What to do in case of NUGT reverse split?
    6. Do you really think Gold price can fall below $1100 as told by some mining stock expert?

     

    Thank you in advance.

     

    PS : You articles are always great and I am fan.
    30 Dec 2013, 09:49 PM Reply Like
  • Robert Edwards
    , contributor
    Comments (461) | Send Message
     
    Author’s reply » I own a good deal of NUGT with an average price of $41 that I plan to hold for now. My target remains $50 on NUGT as long as $24 low holds. If we drop down to $20 in NUGT then target drops to $45, if we drop to $16 to $18 in NUGT then target is $40. Regarding NEM, I bought some today on the close at $22.92 and I don't see any reason for it to make a new low. I don't see any reason for GDX to go below $20 and to expect to see $17 is probably a pipe dream. GDX is oversold to the max and showing strength when it retests the lows. My stop for NUGT is around $19 give or take a bit, but I plan to daytrade some so I don't have to stop myself out. I don't believe NUGT will reverse split as I don't see gold going below $1155 and therefore a reverse split will not be in the cards. Everyone wants gold to fall to the 50% retracement area around $1087 or so, to get a great buy, so it will likely not happen.
    30 Dec 2013, 11:27 PM Reply Like
  • Lumia_920
    , contributor
    Comments (88) | Send Message
     
    Thanks Robert for being so frank . I really appreciate your feedback on some of my concern regarding Gold price target. I am looking forward to see an outcome of your analysis.

     

    I am going to hold NEM for a long term. I see NEM at $40 may be by end of 2015 which is still not bad. I am day trading NUGT and had some good and bad luck.

     

    Wish you a very happy New Year 2014.
    30 Dec 2013, 11:52 PM Reply Like
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