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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
  • With Deeply Entrenched Down Trends, Why Am I So Bullish On Gold And The Miners?  2 comments
    Jan 1, 2014 5:14 PM | about stocks: GDX, GLD, NUGT, DUST, NEM, ABX

    Jeff Kilburg explains why he is bullish gold on CNBC, click here. The tax selling is over and so we should get a spring back in early 2014, and he feels gold will return as a safe haven play as soon as the stock market peaks. Ryan, at Chartswingtrader.com, click here, explains in his video how we sees a small 1-2% January rise in the stock market to be followed by a 10 to 15% correction that worsens into the summer and a final late year rally. The stock market is overdue for a correction and now we are into 2014, stock traders can sell and lock in their gains beginning this January. Thus, the over-performance of stocks and under-performance of gold stocks, should now go the other way.

    Newmont Mining fell 51% in 2013 for the worst performance of any stock in the S&P 500. The miners have fallen nearly twice as much as the metal and that should correct the other way in 2014 when we get an upcoming overdue short covering rally.

    Gold Miners Should Base Between Now And February 2014

    David Banister wrote an excellent article posted at Minyanville.com, click here, that explains how one should sell when 80% of stocks in a sector are trading above their 50 day moving average, and buy when 20% or less of stocks in a sector (think gold stocks) are trading above their 50 day moving average. When the gold mining ETF (NYSEARCA:GDX) bottomed in late June 2013, zero per cent of gold stocks were trading above their 50 day moving average. At present, only 10% of gold stocks are above their 50 day moving average, and GDX recently made a new 5-year low. Mr. Banister says to accumulate gold mining stocks now and over the next 4 to 5 weeks. This also corresponds to the January 1980 to June 1982 bear market in gold that bottomed after 29 months. February 2014 is the 29th month of the current bear market in gold so we are perfectly set up for a bottom to occur at this time.

    Bearish sentiment is at a historically significant extreme level and a rally is overdue to force the sentiment readings to revert to the mean. It is very difficult to keep the bearish sentiment readings this great, for any sustained period of time.

    Tuesday, December 31, 2013 Price Action Was Extremely Bullish

    On Tuesday we saw February 2014 gold futures on the COMEX sell off to $1181.40, early on, very near the $1179 area low hit back in June. But just over an hour later, gold rallied $32 and would close above $1200 for the fifth straight day. With the lows so convincingly rejected, I do not see gold trading back in the $1180s again without first testing resistance just above $1260. On a very short term basis the path of least resistance is higher. Here is a look at the chart:

    (click to enlarge)

    The December 31st pattern is quite similar to what was seen on December 6th. In early December, after rejecting the lows, gold rallied a small bit the following day and then surged to above $1260 the day after that. I am looking for a similar small up day on Thursday and then a big rally day on Friday, January 3rd, hopefully testing the $1260 area again. But unlike early December, I am hopeful that this time the resistance at $1260 is overcome and we continue rallying towards $1300 to $1360.

    On the above chart, look at the pattern February gold futures formed on October 15th. After slipping just below $1260, gold rejected the lows and began a 9 day rally that carried gold up over $100. I am expecting a similar $100+ rally now off the bottom hit on Tuesday, December 31st, that should retest the $1300 resistance level.

    September 18th is a similar day where lows were rejected but gold still closed down slightly for the day, but a bit up from the opening. That time a $75 rally was quickly achieved when the Fed failed to taper. Also look at the similar pattern of August 2nd. That time gold did not immediately rally, but continued to fall for two days and made a slightly new low with the bullish hammer formed on August 7th. A rally of $160 then was achieved over the next 3 weeks.

    One can see that the action of Tuesday is extremely bullish and portends higher prices for gold in the short term, that should cause a rally of $100 to $160 in short order. The bullishness is also confirmed in the miners. On americanbulls.com we find that the gold mining ETF (GDX) formed a bullish engulfing pattern on Tuesday, click here. With any further strength when markets re-open on Thursday, January 2, 2014, americanbulls.com will be forced to cover their short position and go long again. I will finish with a daily chart of GDX:

    (click to enlarge)

    The above chart shows the blue 10 day moving average line about to cross over the red 20 day moving average line. We have been going sideways in GDX for 4 weeks now, forming a solid base above $20. The MACD shown below the daily chart above, gave a buy signal nearly 3 weeks ago and a move in GDX back to the $24 area should occur soon even if I am wrong about a bottom forming. I don't believe I am wrong about the GDX bottom. Last summer GDX bottomed and rallied from $22.21 to $31.06. A similar rally now from the low $20s would carry GDX to $29 and the triple leveraged gold mining ETF (NYSEARCA:NUGT) from $24 to over $50.

    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 GDX.

    Additional disclosure: Also long NUGT & NEM

    Stocks: GDX, GLD, NUGT, DUST, NEM, ABX
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Comments (2)
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  • shopvac20
    , contributor
    Comments (10) | Send Message
     
    Thanks Robert ... Another great read! Let the new year give us a liftoff in gold and the miners !!
    1 Jan, 07:46 PM Reply Like
  • Growfast
    , contributor
    Comments (274) | Send Message
     
    Looks like we are off on the start for what you present above for this week. Nice to be over 30 in NUGT and almost 24 again in NEM.
    2 Jan, 09:50 AM Reply Like
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