GDX / DUST (Gold Miners Update)

We've had quite a few updates for GDX recently as it has been in a trading range for 9 days, today is going on the tenth.

At first it was a bit difficult to figure out what was going on with GDX, but I think there's a clear picture emerging now, GDX and NUGT should set up a trade that comes to us on our terms which means at a lower price, with excellent long term probabilities and short term charts lining up for timing/entry so there's no sitting in  a range for weeks and getting yanked around which can be pretty nasty with a 3x leveraged ETF.

No matter what GDX does, I still do not see the signals there to support a DUST trade and as such I won't put the idea out there even if I expect a move down in GDX (which would mean a move up in DUST). If the signals are not supporting a DUST long (even as a quick trade), there's likely a reason. For example, lets assume our analysis is GDX will pull back under the range in a head fake or false break down/stop run and DUST moves up on that very same move, without signals to support the trade, it "may" be that the GDX move lower only lasts a very short period before it rockets higher making DUST a very dangerous asset to be involved with.

*I captured the charts in a certain order, but I want to present them in a different order so if there are a few areas in the post that seem like, "Why did he post the charts in this order", the reason is I'm trying to show the big picture first, the expectations and then the tactical picture (shorter term signals.

Lets start with NUGT (For instance I originally planned to start with GDX, but NUGT chart captures make the big picture easier to show up front).

 NUGT (3x long Gold miners or GDX)

 This is a 2 hour chart, I believe that the area at #1 is the base for GDX/NUGT and it has either moved in to stage 2 already and is in a consolidation right now, or perhaps the base is actually much larger and a stage 2 breakout would be around the GDX $31-$32 area. In any case, that would be a primary trend cycle, this is still a cycle and would probable be considered an intermediate or sub intermediate trend.

What's important is that the area where we are currently consolidating in a range (10-days) has a leading positive divegrence on a 2 hour chart so whatever the near term noise, probabilities suggest the resolution ultimately will be to the upside, continuing the preceding up trend off the December lows.

This is what the "Larger" base theory would look like in GDX...

The price pattern "implied" target would be in the area of $44-$45, for GDX, but they almost always run extreme to the upside as they do to the downside so even higher would be likely.

NUGT...

 This is the 60 min chart, there's a head fake move that was under distribution that sent NUGT/GDX lower, that would be the decline that forms the right shoulder and as you can see, there's a positive divegrence at the lows of that pullback or what would be the bottom of the right shoulder that is in place thus far so it does make sense.

The red trendlines defining the range to the far right is what we are dealing with now and where I would set up a long position.

When I say there are 3 places I'll short a H&S top, the same concept applies to a H&S bottom and the second place is the bottom of the right shoulder...just about where we are now.

 This is NUGT's 30 min chart, again the decline in March/negative divegrence forms the right shoulder or part of it anyway and as the lows of that shoulder are reached, you can see positive 3C divergences.

However, at the range, there's a relative negative divegrence, on a 30 min chart this isn't a big deal, but for near term or swing trading, you must be cautious.

GDX...

 This is GDX's 60 min chart,  it too shows a negative divegrence and a head fake move right before the downside reversal implied by the negative 3C divergence, as well as a positive divegrence at the lows of what would be considered the bottom of the right shoulder (at least the right shoulder that is in place as of now as there may be more).

Note the relative negative divegrence right at the range to the far right.

Now, more tactical charts. This is GDX 15 min, I wanted to show the head fake concepts in action, at "A" we have a break below the range, I often say that head fakes are good for a number of reasons, but one is creating momentum from the failed moves and shortly after the failed break below support, GDX shoots up and through the resistance level of the range, Another head fake move at "B". This failed "breakout" promptly reverses to the downside and drops us right at support which I believed would be broken, as I was putting this post together, IT WAS AND ON SOME VOLUME so we know some stops/orders were hit.

 Interestingly the 1 min chart shows several accumulation areas at support and a negative at the head fake above resistance, it also shows recent positive divergences as price hits support again today.

With this range being so obvious and the longer term charts being so strong, I'm sure you can probably guess what I think is coming and why that provides us with an EXCELLENT trade set up/entry.

 The 2 min chart  (remember, these are intraday charts and often used for steering price intraday) shows accumulation at the lows of support and the lower head fake move below support and of course distribution at the upper head fake move or "False breakout".

The 3 min chart also shows positive divergences at support, negative at the upper head fake/failed breakout. Also notice the leading positive right now as price hit support today.

 However, on an intraday basis, a closer look of the exact same chart, the defining feature here is the leading negative divegrence, they purposefully sent GDX/NUGT lower to support where it likely just loitered for a bit as it usually does at support/resistance and then broke lower, which I believe is the real intention and the real set up.

 When we get to 5, 10 and 15 min charts, things look very different and it appears that all of the action on the intraday charts was for 1 reason only, to create the range as traders will notice it and base their trades on how price moves either above or below the range, essentially it is 1 big head fake move or trap/set up.

I think the reason we see so many intraday 1-3 min positive divergences and so few negatives is that the overall broad trend at the range is a negative divegrence meant to send GDX BELOW the range, suck in bears and short sellers and set a bear trap which will ultimately fail and create the momentum I showed above that head fake moves often due, this time via a short squeeze and that may be what is needed to lift GDX from the bottom of a right shoulder to a break out of the large base to stage 2 mark up.

 You may recall that a week or so ago I pointed out the 10 and 15 min negatives that were forming at the range and I said, "I would not trade GDX long until these 10/15 min charts resolve back to positive divergenceS".

Again, I think the reason they are there being we are in a large base that has seen significant accumulation on 2 and 4 hour charts , is to send GDX below a very easily recognizable technical trading pattern to once again , USE TECHNICAL ANALYSIS AGAINST TECHNICAL TRADERS AS THEY ARE SO PREDICTABLE.

 The NUGT 10 min, notice that the 10 min is "STARTING" to repair, I think it needs to move below the range where supply will be abundant and cheap and that's where these charts will go positive and the trade entry will be found.

And NUGT's 15 min chart, leading negative, essentially pulling NUGT and GDX BELOW the range.

From here, the set up should be some variation of the following...

GDX already broke below support as I was writing this, the next level will be below the previous head fake move that is "A".   "B" is the reversal process, also where positive divergence's will pick up and the 10-15 min charts should go positive.

 "C" of course is the typical head fake move of the reversal process, we see them all the time so I would expect to see it here as well. At  "D" any shorts will likely have placed their stops just above resistance, the lower trendline which was support this morning until GDX broke below it. It is at that point that a short squeeze gets triggered, that should easily lift GDX to the second or highest trendline of the range and that's where long traders will step in creating more demand (short sellers covering are buying, add longs buying and the demand creates more momentum, perhaps enough to break to stage 2 of the "Larger" inver H&S base.

"E" is simply the process just described.

All we have to do is wait, watch for price to go from down to sideways or tracing out a "U", "W" or rectangle, that's the reversal process. The 3C charts in 10-15 min ranges should go positive, at that point we can start entering some longs and leave room for a head fake move below the reversal process, that's where I'd fill out a full size position and hang on.