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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
  • After Today's Selloff In The 3X Leveraged Gold Mining ETF (NUGT), What Is Next? 9 comments
    Mar 19, 2014 9:25 PM

    (click to enlarge)

    (click to enlarge)

    To better predict where the triple leveraged gold mining ETF (NYSEARCA:NUGT) is heading, it is best to study the chart of GDX that NUGT is based on. I was looking for support in GDX to hold in the $25.80 to $26.20 range, which would have translated to a low in NUGT of no worse than $46. Initially on the Fed taper decision today, GDX held support at $25.83 and later at $25.77. GDX bounced a couple times in fact, once back towards $26.10 and another time back towards $26. I was able to pick up shares on the first selloff from $47.50 down to $46.60 in NUGT, and sold them out on the first rally at $47.90. The next time I bought back around $47.10 and continued buying down to $46.15, and dumped those shares on a rally at $47.18. So far, so good. However, I then bought NUGT at $46.50 and $46.25. But this time the GDX broke support and made a new low. GDX would eventually close below the $25.56 low of 2/19/14, at $25.44. Support now lies at $24.72 which also happens to be about where the 50 and 200 day moving averages are about to collide.

    I recently suggested buying into the broad support zone in NUGT between $47 & $50, but that support was destroyed today. If GDX does find support on a further drop of about 2 1/3% lower than today's close, NUGT would find support about 7% lower than the $44.19 close of today. That would put support in NUGT at $41.00. If GDX bottoms between the $25.40 to $24.75 area, it should quickly retrace back towards $26.00, causing a rally back to $47 in NUGT. On a rally back to $47 in NUGT I plan to lighten up significantly in my position and am hopeful we will get that snap back rally Thursday or Friday of this week. If GDX trades down to $25 or a bit lower in here, it will have dropped at least $3 from the Friday resistance level at $28. From the low one could expect a bounce of $1.00 to $1.50 in GDX in short order. If NUGT bottoms somewhere between $44 and $41, it should bounce towards $47 and could even pop as high as $50. I would expect to see a two week consolidation now in GDX/NUGT where GDX trades between $24.75 and $26.50 and NUGT trades in a range from $41 to $50. Right now I am 1/3 invested in NUGT with most of my shares added in the low to mid $46s this afternoon. I plan to sell out most of my shares on a rally between $47 and $47.50 which will allow me to get out at break even. As long as $24.75 support holds in GDX and $41 holds in NUGT, then I do not anticipate buying DUST to balance out my position. However, I have a mental stop at $40 on NUGT and if we should start to slip below $40, then I will immediately liquidate the position and/or buy DUST shares, depending on market conditions at that time. As long as NUGT trades above $40 then I will continue to buy on weakness in NUGT down to $41 and sell out on rallies, especially at $47.00 and higher.

    April gold futures are bottoming right now above $1325 support and should find further support at $1300 which should keep GDX from slipping below $24.75 and NUGT from going below $41. The market is now becoming oversold in the very short term and could easily bounce back to $26 in GDX and $47 in NUGT even if they are continuing lower. I still prefer being in NUGT over DUST but I wish that I had stayed with my DUST position a couple more days. So far my move into NUGT was a couple days early. We should be in a 2-week range trade beginning tomorrow within the parameters I have identified. I will be aggressively scalping in and out of NUGT to lower my average price and am hopeful there will be some short-term rallies of $1 or more that will allow me to take partial profits at least on my low shares and lighten up. I never anticipated this strong of a reaction to the Fed announcement today and it appears funds were just determined to cash in their recent gains from the long side. Now there must be a significant number of shorts and hopefully buying will show up at these lower levels, forcing the shorts to cover and cause the short-covering rallies that I look forward to selling into.

    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.

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Comments (9)
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  • Robert Edwards
    , contributor
    Comments (422) | Send Message
     
    Author’s reply » John Tiwari pointed out that the last few days are quite similar to Oct 29 - Nov 1st 2013. Back then we broke under the 18 day moving average and today we fell hard under the same 18 day moving average again. He is wondering if we could fall back to 24 in NUGT. I answered back yes, you could be correct. However, back then we went sideways for a couple weeks first, and I expect to do the same again. At the end of the consolidation we could go up, or we could go down like last time. That is why I will be selling out of most of my NUGT on the first move back up to $47.

     

    I had written an article recommending buying SDOW on Tuesday and that would have worked out great since we sold off hard today in the Dow Jones Industrial Average and SDOW surged to the upside. I got busy and did not do this trade but it would have helped hedge my NUGT position.
    19 Mar, 11:11 PM Reply Like
  • Growfast
    , contributor
    Comments (273) | Send Message
     
    Tomorrow will definitely be interesting as we regroup. With all the bulls rushing into Gold and the ETF's during the past few weeks, we knew this had to correct. Ukraine situation now known and taper (with adjustments more hawkish) communicated by the FED. Following the prior 2 FED announcements, we did sit still at lows and consolidate for a while before moving up.

     

    I still think a correction to at least 1300 and possibly 1280 is due; just not sure whether we head straight there, or have some technical bounces up first. Or, with the bullishness that has come into Gold, whether bulls will come rushing back in and drive to new highs.

     

    Not very often is there a dull moment in Gold, NUG/DUST, JNUG/JDST, GDX and GDXJ...

     

    Thanks for the article!
    19 Mar, 11:35 PM Reply Like
  • Robert Edwards
    , contributor
    Comments (422) | Send Message
     
    Author’s reply » With April gold futures trading above 1368 area up to 1392.60, and with GDX hitting $28, I threw in the towel on the big correction move for now and that is exactly when it occurs. Anyway, I plan to sell out of NUGT on a pop to $47+ and will then look for a spot to buy DUST again. For now, DUST remains the play but hopefully we get some two way action that allows for NUGT & DUST plays at the same time.
    20 Mar, 09:03 AM Reply Like
  • Lefty6x6
    , contributor
    Comments (41) | Send Message
     
    sold my DUST pile yesterday and made some $$ - sitting on a bunch of NUGT @ 44.50.

     

    will look to teeter totter again today, and dump NUGT anywhere close to 46 anywhere in the next few days.
    20 Mar, 09:08 AM Reply Like
  • Robert Edwards
    , contributor
    Comments (422) | Send Message
     
    Author’s reply » Sounds like a plan, Lefty!
    20 Mar, 09:09 AM Reply Like
  • memshu
    , contributor
    Comments (568) | Send Message
     
    i am puzzled by why DUST has not really decayed over its lifetime (almost the same ratio to GDX) while NUGT has (like it's supposed to). anyone understands this?
    27 Mar, 04:46 PM Reply Like
  • Robert Edwards
    , contributor
    Comments (422) | Send Message
     
    Author’s reply » DUST has not decayed because there have been more down days than up days since it began trading. NUGT decays on down days, DUST decays on up days. There have been a lot more down days than up days in GDX over the last couple years.
    27 Mar, 04:49 PM Reply Like
  • Tradestrong
    , contributor
    Comments (22) | Send Message
     
    Robert and Grow,

     

    Here is what i think on GDXJ & GDX:
    i think we are likely to have a short term reversal on miners. this could lead to a gap fill in GDX and GDXJ. i really think we could still test last year low. if you take a look at weekly chart. it's really bearish for miners. STO MACD not looking pretty. Inverse
    H&S may not be played out here. Elliot Wave suggest we just finished wave A correction. B will lead us to fill the gap. C will take us the test new low.

     

    here is another reason: USD is likely to break out soon. Fed would like to depress gold and strong USD. this is cause the GOLD bearish case.

     

    what do you guys think?
    28 Mar, 05:12 PM Reply Like
  • Growfast
    , contributor
    Comments (273) | Send Message
     
    I have looked at the weekly chart, but the weekly chart also did not look pretty at all as I recall when we made this last rally since January. Weekly charts are less responsive of course, but it does seem to indicate a view of a longer-term bear trend in Gold.

     

    If the daily chart goes back into rally mode for a good run, eventually it will pull the weekly chart up. I think this is a bull market correction that will go back shortly into bull mode (but, if we break lower, I would consider changing that view of course).

     

    A few items to consider:
    - FED wants inflation to rise
    - Will raise interest rates from near zero upwards to curb that inflation when it begins to take hold (this is still out longer than 6 months I suspect, but at least 6 months)
    - Global geopolitical tensions still at play
    - Banks going bearish on what they communicate their view is again (last time they were bearish we had our rally). If you noticed, several of the banks came out and raised their forecast at the end of the rally, every investment newsletter I saw said you had to be buying Gold (that is when I went to the bear side and saw the correction ahead on the daily chart).

     

    Seem like ingredients for another rally. But, if I'm wrong and pricing turns the other way, I will adjust my positions because I don't have a crystal ball and know with 100% certainly. This is just what I sense after working Gold cycles for a while now.

     

    If you want to write up and article and present the chart, might help to all balance out our thinking - or at least consider the risk that more downside could be ahead. I'm on the bull side of trades now, but could easily go back to create positions I had that worked over the past couple weeks with a strangle (positions on bull and bear side). If we take off either direction, could close out the opposite side positions.

     

    Any other reasons you think we should be headed lower?
    28 Mar, 06:06 PM Reply Like
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