On Thursday, April 4, 2013, the GDX (Gold Miners Index) made a new 52 week low but then finally got a short-covering rally off the lows, as bears took profits and bulls moved in to catch the falling knife. This caused the triple leveraged inverse (bearish) ETF symbol DUST to rally to an 11 month high of 70.92 before falling back to close at 61.87. Since the support in GDX has been broken again, I decided that I wanted to take advantage of the weakness in the gold miners by getting long DUST on Friday. So before trading began on Friday, April 5, 2013, I did research to determine where I might be able to buy DUST and was able to predict the daily range for DUST on Friday as a high of 64, a low of 57.50 to 58, and a higher close. The actual range turned out to be 63.92 to 57.88 with a close of 62.65. up 78 cents. Armed with my prediction of where DUST would trade on Friday, and my conviction that the first dip after a new high would be purchased, I got long at 58.64 and took a larger than normal position. The trading rule of thumb I was using relates to my love of ice cream ...... one can always buy the first dip! No, seriously, the rule is this: After a stock makes a new high, One can almost always buy the first dip! Why? Because those who missed getting in will be looking to get long and they will come in and buy on a minor pullback, in hopes that the stock will rally back up and make a new higher high in short order. That is exactly what I am now predicting to happen in DUST. I am looking for a target of $80 being hit as soon as next week.
How did I come up with Friday's range prediction and my prediction of a top of 80 coming next week? Simply by looking at where DUST traded at when it made its last super all time high in May 2012. Check it out for yourself by plugging in DUST at stockcharts.com. Put in the specified date range of 2012-02-06 thru 2012-10-05. Then on the daily chart click Inspect at the top of the chart and you can scroll over and look at the daily ranges of last year. There you will find that nearly a year ago DUST topped out on 05/09/12 at 68.74 and then closed down just as we did on Thursday, 04/04/13. The next day we hit a low of 56.66 but closed near the highs of the day, similar to Friday, 04/05/13. Then Dust moved up 4 days later to the all-time high of DUST of 78.66. I predict that within the next few days we take out that high and hit 80, or a bit higher and then we have a substantial correction.
We do not have to exactly trade like we did in May 2012, but it is definitely a great road map that can be followed as long as it is working, and during the current rally, the road map has been great. What it tells me is that all dips can be purchased in DUST for the foreseeable future. How do I know? Because when we topped out at similar prices in May 2012 at 78.66, the ETF would correct in 3 weeks to the 38 area and then rally to a secondary high just above 60 in 6 weeks.
Prediction of upcoming DUST trading targets:
Based on what DUST did in 2012, I am now predicting a high of $80 in April 2013, a low of around $40 in May 2013 and then a secondary high of around $60 to $65 in June 2013. That is the macro view. I will be buying all dips through the secondary high of June 2013. At that time we should top and I will then switch over to NUGT, the triple leveraged ETF that goes long the miners. I will then trade NUGT for about 3 months until DUST is allowed to bottom and then I will switch back to DUST again.
Lots of Swings from April 2013 thru June 2013
Looking at the 2012 chart of DUST, one could have profitably played the swings both long and short. From the $78.88 high we fell to 55 in a week. If you did not want to short DUST for that swing, you could have gone long NUGT. Anyway, just a day later, after bottoming at 55, DUST rallied to 65 before quickly falling to 48, then rallying to 57 before falling to a major low of 37.75. The high to low occurred in just 14 trading days, about 3 weeks. By switching back and forth from DUST to NUGT, one could have had some nice swing trades during that three week period. There was a $23 down move, a $10 up move, $17 down move, $9 up move and $19 down move. So we fell about $20, rallied about $10 at a time, fell about $20, rallied about $10, and fell about $20.
CONCLUSION: ROAD MAP FOR DUST IN 2013!
After hitting a high in May 2012 just under $79, we bottomed on 06/06/12 at just under $40, in 3 weeks. DUST rallied to a secondary high of just over $60 in 6 weeks, went sideways a couple weeks, and then rolled over and fell from $60 to $22 in 9 weeks. The exact number of weeks may differ in 2013, but the price levels will probably not differ much. In 2013, I am looking for a top of $80 in DUST, then a drop of about $20, rally of $10, drop of $20, rally of $10 and drop of $20, that will leave us at a $40 low plus or minus $2.50. I then believe we will work ourselves to a secondary high over the next 6-8 weeks to about $60 to $65, followed by a long 8 to 10 week sell-off to a low of $20 to $25. As time goes on I will readjust this forecast so stay tuned. However, this road map should be close enough to reality to be extremely valuable. I am giving it away to the world to prove that sometimes history does indeed repeat itself and by looking at old chart patterns one can discern the future. It will be exciting to see how close my prediction is to reality.
Disclosure: I am long DUST.