DUST: A Short-Term Opportunity To Capture Downside In Gold

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About: Direxion Daily Gold Miners Index Bear 3x Shares ETF (DUST)
by: Equity Management Academy
Summary

If DUST closes above 10.69, it would activate a buy trigger at the closing price on that close and your stop would be 10.69.

If DUST closes above 10.69, it would activate a target of 11.69 at the closing price on that close and your stop would be 10.69.

When the price is trading between B1 and B2 in the blue area, the VC PMI identifies the area as a very strong area of accumulation of supply.

Since we published a report last week on Seeking Alpha called, "Weekly Double-Top Activated," we are looking at DUST, which is a gold miners' bearish ETF.

VC PMI And DUST

"I wanted to show how to use the artificial intelligence of the Variable Changing Price Momentum Indicator (VC PMI) as part of your trading, whether you are a day, swing or position trader," Equity Management Academy CEO Patrick MontesDeOca said. "The VC PMI is a perfect Fibonacci structure of five pivot levels that uses Gann formulas to identify prices based on the average price. Using the square of 9, we can calculate the extremes above and below the mean. The sell 1 (S1) level has a 90% probability that, if the signal is activated, it will revert back to the mean. At sell 2 (S2), there is a 95% probability that the market will revert back to the mean. S1 is then a target. A close below S1, confirms the average price or the level below as the target."

The VC PMI is almost like the GPS. When you are driving, you can turn it on and use it. When you're not driving, you can turn it off. It teaches a methodology to follow, which can improve your trading from 50/50 to 50/90 or even 50/95 standard deviation. It will drastically improve your trading results; if you're disciplined, if your passionate about trading, and if you have an open mind to allow the quantitative analysis to give us the results.

DUST

One of the ways that we are looking at the possibility that gold has accomplished a double-top confirmation is by looking at DUST, a Direxion ETF trust, which is 3x1 bearish. The price of the ETF goes up as the gold market comes down. DUST is at 10.54. The chart shows supply and demand above the below the average price. DUST's average price is 11.69. The price of 10.53 is trading below buy 1 (B1) and buy 2 (B2), the blue levels. The low is 10.22.

"The artificial intelligence of the VC PMI tells us that if the price closes above 10.69, it would activate a buy trigger at the closing price on that close," MontesDeOca said. "Your stop would be 10.69 or, depending on your choice of risk, you can also use 10.02 on a closing basis as your protective level."

Once the trigger point is activated, it triggers the target above. In this case, 11.69, the mean, is the reversion target. DUST closing above 10.69 activates the target of 11.69 as the target for the reversion to the mean. In this case, we are preparing you how to use this scientific tool, the VC PMI, to swing trade more effectively.

When the price is trading between B1 and B2 in the blue area, the VC PMI identifies the area as a very strong area of accumulation of supply. This is where the price is likely to meet buyers or demand. As the price increases as buyers come into the market and absorb the supply, a close above 10.69 activates the automated signal and trigger point.

The VC PMI Automated Algorithm

We use the proprietary Variable Changing Price Momentum Indicator (VC PMI) to analyze the precious metals markets and several indices. The primary driver of the VC PMI is the principle of reversion to the mean ("Mean Reversion Models of Financial Markets," "The Power of Mean Reversion in Factor - Based Investing"), which is combined with a range of analytical tools, including fundamental logic, wave counts, Fibonacci ratios, Gann principles, supply and demand levels, pivot points, moving averages, and momentum indicators. The science of Vedic mathematics is used to combine these elements into a comprehensive, accurate, and highly predictive trading system.

Mean reversion trading seeks to capitalize on extreme changes in the price of a particular security or commodity, based on the assumption that it will revert to its previous state. This theory can be applied to both buying and selling, as it allows a trader to profit on unexpected upswings and buy low when an abnormal low occurs. By identifying the average price (the mean) or price equilibrium based on yesterday's supply and demand factors, we can extrapolate the extreme above this average price and the extreme below it. When prices trade at these extreme levels, it's between 90% (sell 1 or buy 1 level) and 95% (sell 2 or buy 2 level) probable that prices will revert to the mean by the end of the trading session. I use this system to analyze the gold and silver markets.

Strengths And Weaknesses

The main strength of the VC PMI is the ability to identify a specific structure which price level traders can execute with a high degree of accuracy. The program is flexible enough to adjust to market volatility and alerts you when such changes take place, so one can adjust strategies accordingly. Such changes include when the market breaks out of a consolidation phase or a trend accelerates. Such volatility usually happens when the market has produced a signal at the S2 or B2 level, and the market closes above or below these extreme levels.

The day trading program then confirms that a higher fractal in price has been identified, and the market will move significantly higher, although the same principle applies if the market falls significantly. The price closing above the S2 level indicates that the buying demand is greater than the supply. This means that the market has found support for the next price fractal. Conversely, the price closing below the B2 level indicates that the selling pressure has met demand greater than supply at the extreme below the mean, and prices should revert back to the mean.

The basic concept of the VC PMI is that the program trades the extremes of supply and demand based on the average price daily, weekly, and monthly.

The strongest relationship we find in the algorithm is when the daily price is harmonically in alignment with the weekly and monthly indicators. We call this "harmonic timing." Such an indication produces the highest probability (90%) that the price will revert from these levels to its daily, weekly, or monthly average.

Disclosure: I am/we are long DUST. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.