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I May Favor Playing The 3X Short Miner ETF (DUST) Today, While Waiting For The Gold Bull Market To Launch

On the above daily chart of February 2014 gold, the last candle is not complete, as it only includes the night session so far, on this Friday, January 17, 2014. After the big white candle formed last Friday, and the small follow-through white candle we got on Monday, this has been another somewhat disappointing week for gold bulls, as we cannot get any traction to the upside. I try to stay positive as I read articles like, "The New Gold Bull Market Cycle Has Started" by Chris Vermeulen, click here. The article is a great read, but unfortunately, the bull market cycle has not yet been confirmed, and will not confirm without a move above the $1268 level in February gold.

On the chart above, one will notice that the upward wedge pattern continues in tact. However, the upward momentum is waning, which lessens the chances that we can successfully break through the $1250 to $1255 resistance, let alone trade above $1268. On Wednesday morning, soon after we opened and started a small rally, I declared in Stock Talk that the low of the week was probably seen, and we should grind slowly higher towards $1250 to $1255 for the remainder of the week. So far, I have been correct, but the grind higher has been quite slow and tedious. You would still expect a final spike up on the chart to balance out the picture above; a spike up that fails. But there is no guarantee we will see that. At any time we could roll over to retest the $1220 or even the $1200 level. If we do make that drop lower, I still do expect the support to hold as the market would just be building a leg of support from which higher prices could be launched. The longer that we sit where we are going sideways, it looks more and more like February will be the month of the gold market bull launch, rather than on the current run higher.

Dust Has Been Down For Two Days

If you look at the above daily chart of the 3X leveraged bearish mining stock ETF (NYSEARCA:DUST) one will see that DUST has fallen for two straight days. Looking over past action, Dust is almost always a buy after falling for two days. Earlier this week, when DUST fell for the 2nd day in a row on Monday, we got a DUST rally on Tuesday. Now that we have fallen on Wednesday and Thursday, it is likely that DUST either rallies on Friday, or if it falls again, one can buy DUST on Friday and take profits on a rally on Monday. In any case, I am looking to buy dips in DUST on Friday, 1/17/14. How much I balance out the trade with buys in GDX or GDXJ, or the 3X leveraged NUGT, will depend on the chart action we see during the day. I will be updating my trading on a Stock Talk thread today for anyone wanting to follow along.

For fun, go over the above DUST chart and look for times that DUST fell for two consecutive days. It is amazing to see the high frequency that the third day is an up day for DUST. Back in late October, after two down days, DUST did fall for a 3rd day. But anyone who bought on the 3rd day were rewarded thereafter as it was a major bottom just below $26, and DUST would soon rally to $52, a double.

After you read this article, I hope you do not conclude that I have turned into a bear in gold and the miners. I am still very much bullish in the intermediate to long term. However, on a very, very short-term basis, I am cautious until we break out decisively to the upside, and see a very short-term trading opportunity in DUST, that may just turn out to be a one day event.


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 have no positions in any stocks mentioned, but may initiate a long position in DUST over the next 72 hours.