For now I'm just going to look at GDX and its leveraged ETFs, gold will be a separate post.
From what I see, where we are now, NUGT is starting to make a lot of sense, I don't want to make a move quite yet and I'll show you why, but I think if I did, it would not be a big deal at all, I just think the timing can be a little better.
First GDX (gold miners). I think between GDX, NUGT and DUST, you'll notice some themes/confirmation, I suspect by the time we have the GLD/Gold post out, some of those themes will be even more clear. Keep in mind that instinctively or reflexively Gold is QE sensitive and reacts to QE major events like policy, however the actual correlation to QE wore off back in 2011.
Typically gold is bought on
inflation concerns, specifically meaning BEFORE inflation. Perhaps one of the reasons gold lost its correlation to QE is that QE1 & 2 caused significant inflation, especially in materials, gas and food, the things we use every day but are not counted in headline CPI and the commodity inflation caused margin squeezes for all kinds of companies. One thing Qe3 has not done that the previous programs did was to create excessive inflation, it's interesting how traders seemed to expect this well before QE3 was ever implemented.
GDX 2 min gave us our first hint a couple of days ago with this large spike in 3C, it headed down with gold on the F_O_M_C minutes knee-jerk and yesterday that knee-jerk was reversed as they commonly are, putting a floor in under GDX, but at an interesting level. Today we have a gap up and a leading divergence.
The 5 min charts of all (GDX, NUGT &DUST) are interesting for their detail, there's a clear negative sending them lower (DUST higher) and there's a clear break below a support level and at that point is where the stronger leading positive divergences show up, this obviously suggests that the break and stops hit (supply) were accumulated in size (one of the primary reasons for head fake moves), also whether head fake or not, strong divergences and potential long assets almost always see expanding, stronger divergences as we see here.
This 10 min chart doesn't have the red trend line drawn in, but the signals are exactly the same as that area was crossed.
Here the 15 min chart shows the exact same thing (I did draw in the trend line here), confirmation among multiple timeframes is good confirmation.
The 60 min chart not only shows the same , but also seems to confirm my view that GDX (like gold) has been working on one large "W" base rather than two distinct events/bases,
this would make this a much more solid base capable of a much stronger upside move within the realm of intermediate trend.
NUGT 3x leveraged long gold miners which should look similar to GDX, although leveraged ETFs often act a little different in a large base as they can be dangerous in a choppy situation, often they won't see strong signals until the base is nearly complete.
The NUGT base is slightly different, not as much accumulation on the first base of the first bottom of the larger "W", but 3C leading positives pick up substantially at the second bottom of the "W" and has the same move below support.
NUGT 10 min
NUGT 5 min trend which looks almost exactly like GDX.
DUST 3x short gold miners or the mirror opposite of NUGT or 3x leveraged GDX short.
The 5 min chart here also looks similar if it were to be inverted.
The DUST 60 min chart is also very similar if inverted with a leading negative divegrence rather than positive right now.
GDX chart
This is the 5-day chart, when we went over GDX in detail we could see that the pattern above the trend line is a huge, complex H&S top, the downside price target is nearly $15, we hit about $22, these measured moves (targets) are not always accurate (often they actually fall further than the move implies), however I don't think it makes any difference for our purposes because even if this is a counter trend rally in miners, it would be an exceptionally strong move and H&S market behavior would put VERY high probabilities of it moving up and above the former neckline (now seen as resistance), this is the shakeout of H&S tops that is so common as Technical Analysis has taught that a test of resistance should fail and that is an excellent place to short.
The net effect is price moves to the trendline and appears to fail over the course of a couple days and brings in more shorts, then the "Head Fake" makes a move above the trendline shaking out all old shorts and recent new shorts. *This is why this is the third and last place I'll short a H&S top.
Also counter trend rallies are extremely powerful, they need to be to overcome the negative chart bias otherwise they serve no purpose.
This is the daily GDX chart with an interesting and very well defined range where the "W" base has been put together, it could even be called a double bottom although it'sa bit smaller than the technical definition of such.
With double bottoms technical analysis teaches that the second bottom should fall short of the lows of the first (showing strength and demand), however this is another technical concept Wall St. uses against traders and for years double bottoms have seen the second bottom actually make a new low (the head fake move), this shakes out all the weak hand longs, allows for a lot of supply on the stops below the trendline and at cheap prices, this often marks the exact reversal point of the base to move to stage 2 mark-up.
A closer look reveals a recent break of support on increased volume (yellow arrow) as stops were hit, the next day we get a bullish reversal candle, "Hammer" on larger than average volume which makes it a much higher probability reversal and today we have reversed. It's important to note that candlesticks alone have no implied price target, it can be a 1-day reversal or a new trend in almost all candlestick formations except for a very small few.
If we look at the reversal "Process" as you see there are no "Events" here like a "V", but you will notice that bottoms are smaller than tops, the reason I'd wait on NUGT long as a new or add to position is because the reversal process is typically proportional to the preceding trend (the major trend, not the series of minor ones) and that would mean a larger "U" shape, not as large as the late October "W" top, but larger than this.
Also, the probability for a head fake move below the red trendline is very high, especially for a base this large and important.
I'd set price alerts and have this one on your radar, stage 2 mark up is where the easy money and the trend is to be found, I wouldn't want to miss this one.
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