GLD & GDX Update

About a month or maybe 6 weeks ago the near term correlation between gold and the market was inverse, if you had a good divergence on one you knew what the other was going to do, but these were quick 1-3 day trades, then gold just ran up with the short squeeze coming out of the head fake move from the first week of February, I've been wondering what will become of the correlation, whether it will revert to what it was or whether we have something new.

In any case, I love Gold long term and I like GDX (gold miners) long term, but near term, as in a swing trade and maybe then some, I believe both are coming down and have DZZ (DB short gold ETN) and DUST (3x Bear Gold Miners) with the first at break even and the second up 3.5% so far, I expect a lot more and this is the reason I didn't go with an opotions posiiton, I think the trade has enough profit potential, I did juice it a bit with the 2 and 3x leverage.

I'm not saying it's going to be a perfectly smooth ride, but when the charts look like they do, they aren't something I ignore.

First the reason I like both long term...

 GLD 4 hour shows a broad base, at first I thought it would be a counter trend rally in the prevailing downtrend off the 2011 highs which we called as a top, but the base is getting too wide and I think GLD is going to move back down toward the bottom of that base so that gives you some idea of a plausible target for the DZZ long trade. You can even see the positive divegrence on daily and multi-day charts, but this was the most detailed.

 Gold Miners put in a head fake move or stop run on forming its base or at least the second bottom, this is the new normal for double bottom bases and to think Don Worden predicted this about 15 years ago as T.A. became more popular. I think there's an argument to be made for a long term position if/when GDX pulls back to a better price and lower risk.

For now though...

 We had good confirmation in the GLD uptrend until we didn't, the negative divegrence on a 30 min chart should be clear. It's not so strong that I think the overall gold story is being abandoned, but it's strong enough that I think a trip to the bottom of the range is reasonable.

The 15 min GLD chart with confirmation and a negative divegrence, this migrated to the 30 min chart , you can even see an oddly shaped H&S type island top.

And the 10 min chart is more than clear on the divergence in GLD, I don't see much point in waiting on a short here and I have started the DZZ position (long DZZ).

I thought I'd show you DUST, the 3x leveraged Gold Miner Short which is a long and doing well so far)...

 You can see several divergences on this 60 min chart, I don't think any are connected to form a larger, just independent moves, however there seems to be a clear run on the stops on this last or most recent leading positive divergence. This is the easiest way to accumulate as you can get a lot of shares on the cheap at once and no one ever seems to question, "Who took the other side of the trade?"

 Here's a point I've made a few times, as recently as yesterday with DUST's negative and positive divegrence and this seems to be with all assets, the bottom reversal process as we are in now almost always is much tighter than a top reversal process as seen to the left as a larger umbrella or rounding top. There's almost always some proportionality to each individual stock so looking for that can help you determine about when and where a reversal process is going to turn to a reversal, just be aware the market is always more extreme than what seems reasonable.

 The DUST 5 min, once you have divergences like 60 min in place you come back around looking for the near term intraday (and 5 min) to go positive, it use to be easy to explain, it was like market makers and specialists stocking up just before a move was to start and they'd know as they filled the large orders that are going to move the market. About 30% of a stock's volume a day back before HFTs was due to market makers and specialists trading their own accounts which they still do.

And the 3 min in D?UST looks like she's ready to go, of course we already have gains in this one, but I do think both GDX and GLD are about to roll over, what the market does and its correlation has been something I've been wondering about since about the first week of February when I noticed it changing and no longer was taking trades every week in GLD.