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Gold Stock Indicator Points Down

On November 2, 2011, we posted an article titled "A Strategy is Needed for Lagging Gold Stocks." In that article we made reference to a Gold Stock Indicator that we've been using to determine the best times to buy and sell gold stocks. Below is the same Gold Stock Indicator covering the period from November 18, 2010 to February 7, 2012.

In this example of the Gold Stock Indicator, we've provided the percentage change when the Direxion Daily Gold Miners Bear (NYSEARCA:DUST) [in red] and Direxion Daily Gold Miners Bull (NYSEARCA:NUGT) [in green] are bought and then sold when the Gold Stock Indicator has reached the opposite trend line. In this example, the opposite of the NUGT trendline is the red trendline and vice versa. We've excluded the respective peaks and troughs in consideration of percentage change. We only used the periods when the indicator first crossed the opposite trend line.

DUST and NUGT are ETFs that carry the highest risk of loss because they are intended to move at 3 times (3x) the NYSE Arca Gold Miners Index. The top 80% of the NYSE Gold Miners Index comprises of the following companies: Barrick Gold (NYSE:ABX), Gold Corp (NYSE:GG), Newmont Mining (NYSE:NEM), Anglogold Ashanti (NYSE:AU), Kinross Gold (NYSE:KGC), Yamana Gold (NYSE:AUY), Goldfields (NYSE:GFI), Randgold Resources (NASDAQ:GOLD), Eldorado Gold (NYSE:EGO), Silver Wheaton (SLW), and Comp de Minas Buenaventura (NYSE:BVN).

DUST and NUGT are speculative vehicles and not investments meant to be held on a long term basis. Additionally, as the trend for the Gold Stock Indicator has been in a long declining phase, we expect that this pattern should reverse substantially at some point. However, based on the current trajectory, we have May/June 2012 as our tentative reversal period.

Disclosure: I am long DUST.