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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
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  • Looking At 2008 To Get Clues How The Gold Mining Stock ETF (GDX) Might Bottom

    (click to enlarge)

    The above chart is the daily chart of GDX during the fall of 2008 when GDX hit its all-time low of $15.34 (figuring in dividends) made on Friday, October 24, 2008, with the lowest close on Monday, October 27, 2008 at $15.86 (figuring in dividends). If you ignore dividends, the lowest close in GDX was $16.37, (51 cents higher).

    What is amazing about 2008, was that 4 days before making the all-time low, on Monday, October 20, 2008, GDX closed at $23.44. Amazing that the GDX ETF which consists of about 25 different major gold producers, would lose over 34.5% of its value in just 4 days. The lowest day of all times was a Friday and GDX opened on its low and closed up for the day. (Note: With the weakness of the last couple days, I am wondering if GDX might open on its low tomorrow, October 31, 2014, and close up for the day, and then retest the bottom and hit its current lowest close on Monday, November 3, 2014, and then rally strongly out of the hole).

    In 2008, $20 support held initially, but then had two hard down closes below $20, before bottoming on the low of the 3rd day. Moving to 2014, $20 was also support in GDX until it gave away and GDX closed down hard for the last two days, closing today at $18.20, meeting my target of falling 10% below $20 support. If GDX does not bounce from $18, then the next target is $16, which is a 20% drop from the $20 support level. Despite today's carnage, I am still hopeful $18 will be enough of a selloff to get a bounce on Friday and lowest close on Monday at the latest.

    Back in 2008, the all-time lowest close of $15.86 was scored on the 5th day of trading below $20. However, then GDX would bounce back up to $21.75 just 3 trading days later, and hit $23.95, just 7 days later. This shows that had one bought GDX on the close of October 20, 2008 at $23.44, and rode it down through the low close just 5 days later, and continued holding another 7 days, a total of 12 trading days, one could sell at a nice profit of about 50 cents. After this amazing rally, GDX would fall back to retest the lows for 11 days falling to $17.04, before making a high above $25, just 2 days after that. The volatility of 2008 was definitely much greater than the volatility in GDX in 2014. Still, the miners are so oversold, there is a great chance that GDX recovers back above $20 within the next couple weeks, and may rally substantially more.

    I will end with a current daily chart of GDX as follows:

    (click to enlarge)

    Here is the current daily chart of GDX, showing how GDX has fallen over 11% in just two days. On October 8th, GDX did a $2.05 reversal in a single day, hitting a low of $20.11 before hitting a high of $22.16. GDX needs to do a similar reversal now, to stop the current selloff dead in its tracks. If $18 does not hold as support, the next stop is $16, towards the all-time lows.

    There is nothing fundamentally to justify the current action, and based on the price of gold, the gold mining stocks are trading at low valuations not seen in over 30 years. A good example is Iamgold (NYSE:IAG) which has a book value of $7.51, but closed at $1.96 today, just 26% of its book value. The forward PE is 10.3. The market cap is $738 million, but recently the company sold assets totallying $540 million that has not closed and does not reflect in these figures. The assets sold were carried on the books at about $260 million less than what they were sold for, if I remember correctly. Making the book value adjustments, the stock is therefore trading for less than 20% of book value. This stock has traded in the $20, a couple times after trading below $2. This is the 3rd trip under $2, and my son is convinced this stock will again rise from the ashes. He sold out of his GDX position a couple weeks ago and moved into IAG. So far he has lost less being in IAG than had he stayed in GDX. My son held NOKIA stock from over $4, through the $1.67 low, and 10 months later sold out at a nice profit. He is confident that holding IAG from $2.95 will also pay off despite being down 1/3. And he does not expect to have to wait 10 months, before IAG again trades over $3. My son reasoned that instead of buying leveraged JNUG which has slippage and could wipe him out on a reverse split, he can hold IAG for several years if necessary, and when it trades again over $20, he will be well paid for his patience. I agree with his analysis. It is not too late to dump JNUG or NUGT and replace it is IAG, which trades at such a low price, the percentage gains on the upside should compete well with the leveraged mining ETFs of both JNUG & NUGT, without the drawbacks mentioned above.

    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: The author is long JNUG.

    Oct 30 6:50 PM | Link | 3 Comments
  • Will The Gold Mining ETFs (GDX & GDXJ) Ever Bottom?

    Background

    Despite suffering unspeakable carnage, the gold mining stocks have always managed to find a bottom, and then rally strongly back up off the lows. The current shellacking will indeed end, sooner rather than later. Looking into my crystal ball, I can see a bottom in gold and more importantly, gold mining stocks, as early as December 1, 2014, and definitely a month later around January 1, 2015. How I came up with these dates, I will explain later.

    Jeb Handwerger with goldstocktrades.com, just wrote an excellent article explaining how the Junior Miners (NYSEARCA:GDXJ) bottoms once every 6 years, click here. The following chart was taken from that article:

    (click to enlarge)

    In late 2002, the Toronto Stock Exchange Venture Composite Index bottomed in the high 800s. This composite correlates extremely well with the Junior Mining ETF (GDXJ). After bottoming in 2002, over the next 3-4 years, the Venture Composite Index increased in value over 300%, only to make a new low in late 2008 in the high 600s. That bottom would end in less than 3 years, at just above 2400, a 250% gain. Presently the Venture Composite Index is lower than the 2002 bottom, but still higher than the 2008 bottom. But even if we should match and fall slightly below the 2008 lows, all the way down to the low 600s, a further drop of about 20% from current levels, there should be a rally again of 250% to 300% off the lows, over the next 3 years.

    This chart illustrates the fact that it is not totally hopeless. Gold mining stocks fall out of favor and then recover. Gold has been around for centuries and is not going away. There is a demand for gold and someone will be mining it for the rest of our lifetimes and beyond. A brighter day is coming. In the past when the Venture Composite Index got this low, it bottomed within a couple months. I expect the same to occur now, and am predicting a major bottom in the gold mining stocks, for both Juniors (GDXJ) and Majors (NYSEARCA:GDX), by the end of 2014.

    Look What Happened The Last Time GDX Support Gave Away

    (click to enlarge)

    The GDX bottomed in December 2013, at $20.18. Three weeks ago, $20.11 was hit and last week $20.05 was seen. With today's Federal Reserve announcement of the ending of quantitative easing, GDX finally broke the $20 support level and traded as low as $19.57. This opens the door for a move to the low $18s. Somewhere between here and $18.00, I am looking for a multiyear bottom in GDX to be formed.

    For guidance, look back on the above weekly GDX chart to the late June 2013 low of $22.00. That low was tested in August and in October of 2013, and it held. Then in the middle of November 2013, GDX would hit $22.02, closing that week at $22.04. The next week the $22.00 support level was finally breached, and a low of $21.32 was reached before GDX rallied back to close up 3 cents for the week at $22.07.

    In a similar fashion, tt is possible that breaching the current $20 support in GDX, we could fall to the low $19s and then rally by Friday to close up for the week around $20.50. If that would occur, it would be a great spot to sell out of longs, to reposition lower. After making the small bullish reversal in late November 2013, the first week of December, GDX would fall to $20.37, recover to just below $22 the following week, and then bottom in the middle of December at $20.18. Thirteen weeks later, GDX would rally to a high of $28.03.

    I am now looking for GDX to trade in a similar fashion as it did in late 2013. Breaching the $20 support level, I expect GDX will fall to the low $19s before bouncing back up towards $20 or maybe $20.50. Then GDX should fall to the low $18s where it should bottom. This should all occur over the next 3-4 weeks, causing a bottom in GDX by the end of November 2014. A 13 week rally could then see GDX moving to as high as $25+ by the end of February 2015.

    GDXJ Should Bottom In The Low $26s, As We Should Be Within 10% Of The Bottom

    (click to enlarge)

    In my last article, click here, I predicted a further drop of 10% in GDXJ, which would cause a drop of 30% in JNUG, to $5.37. Falling today to close at $6.63, JNUG has opened the door for a drop to as low as $4.80 over the next couple weeks. However, from the $4.80 to $5 area, should we fall that low, JNUG should then move up strongly back to as high as $17.50 as early as late February 2015, if we follow a similar path that was seen during the December 2013 bottom.

    Summary

    Things are looking pretty grim right now in regards to both gold and the gold mining stocks, but we should find support between here and $18 in GDX, and between here and $26 in GDXJ. The bottom is expected to be made by late November 2014. A three month rally off the bottom, in the range of a 250% gain, could then be seen, by late February 2015. What I have described is a road map that I will be using to navigate the gold mining stocks in the near-term. I may not get the timing perfect and I could miss the exact lows, I am just reporting what I saw when I got out my crystal ball. It is my best guess of where gold mining stocks are headed in the short term.

    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: The author is long JNUG.

    Oct 30 4:10 AM | Link | 9 Comments
  • Gold Mining Stocks Struggle To Hold Onto Support

    Gold Needs To Hold Above $1200 & Hopefully $1220

    Where gold is heading right now, no one knows. If we cannot hold above $1220 in December Gold futures, we will need to retest $1200 and likely $1180. If those support levels fail, we could slip down to as low as $1050 if you believe Avi Gilbert, click here. Personally, I don't see gold falling below $1150 anytime soon.

    Recently, gold rebounded over $70 off the bottom, but it did little to help gold mining stocks. The miners are back to their lows. Thus, it is critical that December Gold holds $1220 support and then rebounds to take out resistance above $1255, $1275 and finally $1300. Otherwise things could get really ugly.

    Gold Miners Are Cheap & Getting Cheaper!

    I saw an article, click here, where it was stated that the gold mining stocks are the lowest prices they have been when compared to the price of the gold metal, than at anytime in the past 30 years, and maybe longer.

    I was trying to find an article that summed up what has happened recently in gold mining stocks. One article I ran across was written by Jordan Roy-Byrne at TheDailyGold, click here. In the article there is a warning that GDX could fall another 20% from current prices before bottoming. I concur with that assessment. I feel 10% further selloff in GDX is more likely if GDX breaks below $20, but one cannot rule out GDX falling to $16, vs. bottoming at $18 where I see the most likely lowest price.

    Gold Mining Charts Look Horrific

    Newmont Mining fell to a multiyear low of $20.61 in early February 2014. Today it hit a low of $21.49 so it has not yet made a new low. Barrick Gold Corp (NYSE:ABX) hit a multiyear low of $13.25 in July 2013. The December 2013 low was only $15.13, so ABX was outperforming other gold mining stocks and was building a nice premium. The late May 2014 low of $15.43 was still a bit higher, further building a base. However, last Thursday, Oct. 23, 2014, a low of $13.16 was hit, losing all the premium and taking out the June 2013 low of $13.25, by 9 cents. Today ABX closed at $13.30, a drop of $6 from the recent highs scored in August just 11 weeks ago.

    Just take a look at the weekly chart of Goldcorp, Inc. (NYSE:GG):

    (click to enlarge)

    Looking at the weekly chart of GG, the June 2013 low was $21.53, which was exceeded on the downside in December 2013, when $20.14 was reached. In June 2014, GG only fell to $22.46, and even now Goldcorp is trading just under $22, which is 9% above the $20.14 low of December 2013. I am hopeful GG bottoms shortly and does not give back the remaining 9% it gained off the low hit 10 months ago. GG is the largest position at 14% of the GDX, while ABX is second at 12.6%. Newmont Mining is 8.4%.

    Other miners are not faring as well. Look at the daily chart of another member of the GDX family, Kinross Gold Corp. (NYSE:KGC):

    (click to enlarge)

    Kinross Gold Corp. (KGC) has been totally obliterated. Recently it has been caught in a death spiral under $4, and now trades for only $2.69.

    However, some stocks do look like they are trying to bottom, like Yamana Gold Inc. (NYSE:AUY). Here is the weekly AUY chart:

    (click to enlarge)

    Yamana Gold (AUY) was holding above $8 during 2013, but slipped to just above $7 in the May/June 2014 timeframe. After hitting almost $9 ($8.99) in August, it has fallen in 10 weeks to the $5.50 area. Surely AUY will bottom between here and $5, as the downward momentum is waning. It should then rally back to the $7 to $7.50 area in the near future.

    I was going to finish this segment by looking at a 25 year chart of Iamgold Corp (NYSE:IAG), but I could not get the chart to load. I will just note that this stock hit a high of $11.83 in the 3rd quarter of 2006 and $10.43 in the 4th quarter of 2007. But in the 4th quarter of 2008, it fell to $2.22. However, just a year later, in the 4th quarter of 2009, IAG hit a high of $21.00. The all-time high during the 3rd quarter of 2011, was $23.88, which corresponds to the all-time high in gold. Well, a few days ago, IAG again hit a low of $2.22. This stock has lost over 90% of its value. But if gold would bottom, and begin rallying strongly, there is no reason why IAG could not again hit $21.00, just 4 quarters after bottoming. There will come a day when gold stocks are not hated and despised. They will again rise from the ashes. Gains in stocks like IAG could be ten-fold within as little as one year.

    Holding Leveraged Mining ETFs Like NUGT & JNUG Has Been Financial Suicide

    (click to enlarge)

    The recent action in the triple leveraged bullish Junior Mining ETF (NYSEARCA:JNUG) has convinced me that it is imprudent to every hold the leveraged mining ETFs longer than 2-3 days when one is carrying a loss. If carrying a gain, then one is going with the trend and should be fine, even with slippage. But if one is carrying a loss, those losses must be stopped before they get out of control. JNUG recently hit a high of $36 in July 2014. Today it closed at $7.68. That is a drop of 78.7% in 3 1/2 months. If GDXJ falls 10% further down, JNUG could hit 30% lower, or $5.37. A rebound of 40% in GDXJ should then bring JNUG back 120% off the lows, to $11.81. To break even if one was long from $15, one would need a rally in GDXJ of 60% off the lows, to cause JNUG to rally 180% to reach $15.03.

    If we should fall another 20% lower in GDXJ, then JNUG would fall to $3.07. Then a rally of 40% or 60% in GDXJ, would cause JNUG to rally only back to $6.75 or $8.60. No one wants to see JNUG drop to the $3 area.

    When JNUG was trading in the $8s recently, I recommended to someone that they take off 20% of their position in the $9s, another 20% in the $10s, 20% in the $11s, 20% in the $12s and finally 20% in the $13s. However, JNUG has offered little opportunity the last few days to sell on strength. It would appear to be too late to panic and sell now, even in the $7s, as there is a good chance one can get a better price than this. Panic selling by diehard bulls has exacerbated the current selloff. However, one should lighten up on all rallies, especially when they only last a single day!

    For the past couple months, if one had sold out 50% of their JNUG position, every time JNUG had an up day, and bought back on weakness the following day, one would have done quite well at repositioning to a lower average price.

    Conclusion:

    JNUG can hardly get just 2 up days going in a row, over the past 8 weeks. Where would JNUG be in gold had not rallied $70 off the recent lows?! If gold does break down in the future, one can expect for the miners to break down further as well. When the miners are truly bottoming, they will outperform gold and start rallying even before gold does. Right now, the miners are telling us gold is likely heading down and not up. That has to change. When the miners start outperforming the gold metal, that is your first clue that we are about to bottom.

    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: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Oct 28 2:46 AM | Link | 3 Comments
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