Gold, GLD, GDX & NUGT

For now I'm sticking with a gold and gold miners update, silver looks a bit different, as you know, because of all the manipulation in Silver under JPM's Blythe Masters, it is one of my least favorite assets to analyze and I find it can often be as unpredictable as many biotechs that have drugs in the FDA pipeline.

First let me just establish the correlation between gold and gold miners (GLD and GDX respectively as ETFs).

 This is a daily chart of GLD in green (gold) and GDX in red (Gold miners), you can see the correlation is not perfect, but they are highly correlated, so much so if I were trading my average of about 6-8 positions I would never have a trade in gold and gold miners open at the same time UNLESS I treated them as a single trade, half the position in GLD and the other half in miners, which may give some slight rotational diversification as gold does slip back and forth from time to time between a risk asset or as we saw for a few days at least last week, as a flight to safety, adding miners may smooth out those gyrations.

This is a closer view of intraday trade between the same two assets on a 10 min chhart so you can see they are correlated to a fairly high degree.

It's hard to talk about any position in gold without looking at the biger picture. For all those who feel like, "This time it's different", ask the commoditiy traders and the shipping traders how their unstopable market turned out, ask the AAPL lovers how the invincible AAPL turned out and perhaps as, if not more  (if that's possible) hard core than the AAPL lovers, remember the gold bugs, they NEVER thought gold would so much as do more than pullback to the 150 day moving average. As some of you know, we were calling a top here when it was VERY unfashionable and I reminded you of the story of the fund manager / gold bug who I warned and, well just look at Gold since 2011.

This is a daily chart with a 150-day moving average,  (A) GLD was consistently pulling back to the average and that was the buy spot. We were looking at a position in 2011, even though character had changed as the pullbacks (B) to the average were less and less frequent. When Gold came down to the 150 m.a. in 2011 (D) we passed on a long position, the last run up (C) was too parabolic, character of gold had changed too much and "Changes in character precede changes in trends", this is partly why we called a top in gold with either  an Intermediate or Primary downtrend to follow, the downtrend was a primary bear as you can see the lower lows and lower highs (E) , however something changed this year after a capitulation-like event and it looked like gold was working on a base for at least a counter trend rally, maybe more. At (F) we got our first higher high. (G) may be a higher low or it may see price return toward the low of the year in which case a larger base would likely be under way and a new primary uptrend in gold might be possible, as it sits now, I don't see enough support for anything more than a counter trend rally, but these are some of the strongest rallies you'll ever see so that can be very worthwhile.

The MoneyStream chart shows the distribution at the 2011 high as we saw as well and a leading negative since, but this is a long term chart, it would take quite a bit of accumulation to turn this positive, MoneyStream is at multi-year lows.

The same 2-day chart of 3C shows trend confirmation on the way up and a deep leading negative divegrence in 2011/2012, note the large triangle, traders are faked out all the time by these, but they are almost always tops in this position so a breakout on the upside is often a great short entry, although I still check for confirmation. GLD offered us one of the biggest 1-day trades we had last year, I don't remember the exact percentage, it was triple digit and in something like 3 days.

What we are dealing with RIGHT NOW in GLD is a positive divegrence on a daily chart so it's fairly strong (white arrow).

 This is the 1 day 3C chart of gold futures, note the same leading positive divergence and positive at the lows of the year. I drew in a yellow arrow which would build out a larger base that "could" support a primary uptrend. If not, then we still can get a great move on a counter trend rally.

 This 30 min chart of GLD shows distribution to bring GLD back down to an accumulation range where it was accumulated and printed a break-away gap,  we all know that this market is now relentless about filling gaps, if this were not PM related I'd say the chances of a gap fill are 90%, being it is a PM, I'd say 75%, but a gap fill in GLD or GDX is where we want to look at a possible long position or add to long.

This 10 min chart shows the positive accumulation , note the range at the lows is where it was accumulated as always and the breakaway gap. The fact that there's no negative 3C signal currently at all makes me feel safe with a pullback in to the gap and makes me believe the probabilities are that it's a healthy pullback that is accumulated and thus a great entry or add-to.

 The 5 min gold Futures chart shows what looks like a decent negative divegrence, enough to fill the gao. I'm thinking the entire process would probably take about 7 trading days, but this obviously has a lot of caveats between flight to safety, currency and $USD in particular.

Since GDX and GLD are so closely correlated, I wouldn't expect much different, we (or some of us) have open GDX calls or NUGT (3x leveraged long gold miners) longs.

 This two hour chart is very powerful, it tends to confirm GLD and gold futures with a strong leading positive divergence.

The 15 min chart shows a pullback that was accumulated before the last pop higher and it's in good shape.

 However on the shorter, weaker charts, we do have a 2 min leading negative which is perfect for a pullback move to fill the gap, the 15 min positive suggests the pullback would be accumulated and therefore a good entry long (for either GLD, GDX, or NUGT).

 I looked at NUGT (the 3x leveraged version of GDX) and the 1 min chart confirms the uptrend, goes negative for a pullback and pops a little in to a stronger negative. This too, like GLD and GDX short term charts suggests that gap will be filled as they so often are now unfortunately as they use to be some of the best support/resistance areas you could find.

I also checked DUST (3x leveraged short GDX) which is the opposite of NUGT, it has as you can see, a trading range (that tells us something by itself) with a leading negative divegrence and that pulled DUST back, but the positive divegrence on the 1 min chart suggests the gap down will be filled, the mirror opposite of GLD, GDX and NUGT so I think that's good confirmation.

I would not trade against the highest probability/strongest charts and try to short any of these for a gap fill, I would however set alerts for price moving toward filling the gap and we'll confirm our expectations and I think we'll have a very strong long position.