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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
  • I Am Fading This Gold Mining (GDX) (GDXJ) (NUGT) Stock Rally & Buying DUST On Dips 15 comments
    Mar 3, 2014 5:19 PM | about stocks: GDX, NUGT, DUST, GDXJ, GLD, JNUG, JDST

    (click to enlarge)

    Higher Prices Were Rejected Today In GDX

    With the escalation of events in the Ukraine over the weekend, we got a pop in the gold mining ETF (NYSEARCA:GDX) today as shown on the above chart. But we closed near the lows of the day, just like we did 3 other days recently in GDX (the candles are black showing we closed below the opening, but still up for the day). The MACD at the bottom of the chart has turned down and recently did a crossover giving a sell signal for GDX. Gold made a marginal new high today but GDX did not, as the miners are underperforming the metal, a bad omen for gold mining bulls.

    DUST Remains A Buy On Dips

    We dropped all of last week, but the selloff was muted and the leveraged bearish gold mining ETF (NYSEARCA:DUST) could not rally much beyond $21. Therefore I decided to take profits on my core DUST position above $21 on Friday. I anticipated a likely higher close today, Monday, March 3, 2013 in GDX, and small correction in DUST, not knowing the Ukraine situation would escalate over the weekend and the correction would be exaggerated. But after the opening, I again began buying dips in DUST and it was the correct trade. I plan to continue to buy dips in DUST until it hits the initial target above $24. Here is a daily chart of DUST:

    (click to enlarge)

    DUST opened today on its lows, and closed near its highs. When this occurs near major lows, it is quite bullish. The MACD did a bullish crossover as well, see the bottom of the chart. Also, the blue 4 day moving average line crossed over the red 9 day moving average line, giving a buy signal for trend traders.

    I don't know if you got a chance to read the Barron's this past weekend, but there is a "Grasping At Gold" article on p. 41 written by Mark Hulbert. I agree with the points made in the article. One point alluded to is that the best, most accurate timers are less bullish gold and the miners, than the less successful timers. In an earlier instablog, I mentioned how the two most accurate timers as reported by Bloomberg, were predicting prices in gold by the end of 2014, at $1100 and $1050. For many reasons, the current rally in gold and the miners still appears corrective in nature. But even if the current rally is the beginning of a new bull market, we are overdue for a correction back to $1275 to $1280 in April gold, and back below $25 and possibly as low as $23 in GDX. That would translate to a rally of $24 to $29 in DUST.

    Higher Gold Prices Can't Save The Miners

    VantagePoint was bearish both gold and silver coming into today. But even factoring a 2% rally today in gold, VantagePoint is calling for lower gold and silver prices on Tuesday, click here. April gold futures took out resistance at $1350 today, but there is more resistance just ahead at $1360. If events in Ukraine would escalate, it is possible gold could break out and rally towards $1400 in the near term. And that would likely cause GDX to rally to major resistance at $28. However, I would at that point add to my DUST position with the anticipation GDX would roll over and retest $25 and ultimately $23, just as I am currently predicting. Any gold rally in the near term, should be erased the moment the Ukraine situation is resolved or fades from the news. I do not believe the current gold rally can be sustained, without retesting the $1280 to $1300 area first.

    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 DUST.

    Stocks: GDX, NUGT, DUST, GDXJ, GLD, JNUG, JDST
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Comments (15)
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  • ricejudicata
    , contributor
    Comments (21) | Send Message
     
    Thanks for the write up, RE. I bought more at 19.01 and 19.04 and saved some powder to scale in case Ukraine escalates. De-escalation and taper on the horizon should be catalysts for near term pull back. I was hoping to see a larger drop in equity to pull miners down, but the correction today was relatively benign, and that didn't happen.
    3 Mar, 05:32 PM Reply Like
  • $DUST
    , contributor
    Comments (52) | Send Message
     
    I largely agree with you Robert. I actually thought gold will test $1360 before dropping to $1280. The fact that it almost got there and GDX refused to break out while DUST seems to hold above $19 shows me this is not sustainable. Furthermore COMEX kinda shows absence of both bulls and bears as compared to the last year, implying that both parties are not confident at this point and market is moving more on news like Ukraine. If that does not escalate (or barring any other crisis) gold should drop. Worst come to shove bulls manage to eek-out another push and encounter glass ceiling at $1390. DUST at $16-17 will be a steal then.
    Missed out on the last NUGT ride, hell if I'm missing this one. I'm keeping my core DUST shares at $21. Will add if gold breaks down below $1330 or if DUST starts approaching $16-17 area. Looks like a winning strategy either way.
    Robert, any thoughts about this whole ride in gold being a dead cat bounce? What are your thoughts for the gold going forward into 2014? Could this be a big-fix to completely destroy bulls? Do you think we will see gold at $1100 or $2000 going forward?

     

    Do you have any gold nuggets to share like NQ? Wish I'd held that since you told about it. Almost 100% since.
    3 Mar, 11:06 PM Reply Like
  • Robert Edwards
    , contributor
    Comments (458) | Send Message
     
    Author’s reply » Another trade idea I like is buying the uranium stocks. Leading producer is CCJ that I would like to buy, but need a correction to get in. It popped on Japan saying they will restart and expand some nuclear reactors and China also looking to add Uranium by end of year. Price of uranium should recover by year end and we are just now turning up from a 2-year selloff in Uranium mining stocks.
    4 Mar, 11:08 AM Reply Like
  • metalhead
    , contributor
    Comments (69) | Send Message
     
    Good article, my only cautionary note is that those supposed "best" market timers are likely just due to random luck, not any actual skill.

     

    I read the same analysis on Bloomberg and it is an excellent example of survivorship bias. Apparently the track record of these two supposed great timers only goes back two years. So we don't know if they predicted the huge rally in miners that occurred back in 2010 and 2011. More likely they are the equivalent of the "hot shooter" in the NBA who statistically over his career stinks, but occasionally goes on a streak and sinks 4-5 three pointers in a row.
    4 Mar, 09:43 AM Reply Like
  • Robert Edwards
    , contributor
    Comments (458) | Send Message
     
    Author’s reply » Excellent point. That is why you don't put money with the top performing funds of the previous year as the manager is now due to turn cold and will now underperform.
    4 Mar, 10:47 AM Reply Like
  • metalhead
    , contributor
    Comments (69) | Send Message
     
    Today's price action in miners looks bullish to me. We made the low at the open and have risen steadily ever since. I would think that we go higher from here at least over the next 1-2 days. The NFP report Friday will obviously be a big influence on the market direction from there.
    4 Mar, 02:35 PM Reply Like
  • Robert Edwards
    , contributor
    Comments (458) | Send Message
     
    Author’s reply » I agree with you to a point. DUST made high on the opening and I guessed right by buying 1400 DUST in aftermarket that I dumped for a nice $1K overnight profit. But from there, DUST slipped back to 20 and could not get any real traction to the upside today. Again, there is bullish sentiment and they are buying every GDX dip. After buying back into DUST near the lows, I ended up selling out and am now flat. I did not like the action today as it does appear we may get a bounce back in gold maybe to retest highs tomorrow and/or a small pop in the miners. If this occurs, then I will buy DUST back in the $19.50 down to $19.00 should it fall that low. I still like DUST on dips as one of these times it should gain traction and move to $25. I am patient.
    4 Mar, 05:15 PM Reply Like
  • metalhead
    , contributor
    Comments (69) | Send Message
     
    There is a rumor going around that Yanukovytch died of a heart attack and that is why Putin backed down.

     

    I don't have any idea whether it is true or not, but it would explain the big move up in stocks and down in gold.

     

    Who knows, maybe it was planted but if he doesn't make a public appearance soon it gains credibility.

     

    That is the kind of thing you can't predict nor safeguard your trading account against.

     

    I wish I had a theory to tie this to the price action in GDX, but I don't. I dumped all my JDST today as I don't know what to trust anymore.
    4 Mar, 06:39 PM Reply Like
  • Robert Edwards
    , contributor
    Comments (458) | Send Message
     
    Author’s reply » If you are not comfortable in your position, it is smart to get out. I got out of my DUST position today as we were not falling in GDX as much as I expected, and not rallying in DUST like it should have. Lots of gold miners on the buying on weakness top 100 list today, which could be bullish for miners in the near term, check it out here: http://on.wsj.com/AASMqQ
    5 Mar, 04:29 AM Reply Like
  • almoni
    , contributor
    Comments (90) | Send Message
     
    -colleagues thanks for competent analysis of gold bugs.
    I am also in Long in gold also gdx,gdxj

     

    to uranium and its etf i'm bad - negative.
    For many years I'm under water - with my nlr etf position
    5 Mar, 03:26 AM Reply Like
  • Tradestrong
    , contributor
    Comments (22) | Send Message
     
    time to update a new article now Robert. lol ;)
    13 Mar, 02:22 PM Reply Like
  • Robert Edwards
    , contributor
    Comments (458) | Send Message
     
    Author’s reply » I was in DUST then took profits at $21. However, I bought again yesterday and today, as we traded back under $19 in DUST. If we find resistance in GDX between $27.64 & $28.00, we should correct back towards $26.50 and I will get out at a nice profit. If we break on up, then I will have to adjust, but I am not looking for a GDX move above $28 right now. Will be doing an article likely in the next 24 hours.
    13 Mar, 03:35 PM Reply Like
  • Tradestrong
    , contributor
    Comments (22) | Send Message
     
    Nice to hear you Robert. looking forward to seeing your new article. i bot jdst at 17.20, 16.5 15.3 and Average @ 15.80 with a bag of JDST. lol

     

    hope i am fine at this price.
    13 Mar, 04:00 PM Reply Like
  • metalhead
    , contributor
    Comments (69) | Send Message
     
    Far from my wheelhouse to make predictions, but looking at the charts right now points to a breakout in GDXJ. I would be careful here, full disclosure I am long SLW and considering adding some GDXJ.
    13 Mar, 03:39 PM Reply Like
  • Robert Edwards
    , contributor
    Comments (458) | Send Message
     
    Author’s reply » It is a breakout above resistance but it is too early to know if this breakout will be sustained and will lead to much higher prices. If it slips back, it could end up being a false breakout. Gold is overdue for a $100 correction which could come from $1400, or $1435, if not from where we are now. If and when that correction finally occurs, GDXJ will be much lower. As long as gold continues in its current upward trajectory, you should be fine. You have to watch it very close though because if Ukraine situation gets settled, we could fall back very quickly.
    13 Mar, 03:50 PM Reply Like
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