GDX / NUGT Update

As you probably know by now as I have been doing daily or bi-daily GDX/NUGT updates, NUGT is a partial position (long) in the trading portfolio, it is a position I desperately want to add to, but there have been certain things that I have expected to see since late April that included a move out of a trading range and below it where GDX/NUGT (Gold Miners) would be accumulated as part of a much larger price pattern. 

I have been very patient with the process of letting it do what has been expected since April, amazingly it has been doing exactly what was expected, but we've had to let it do it at its own pace and just keep watch over the charts and let them tell us where we are in that process, BUT I'M FAR MORE COMFORTABLE WITH THE IDEA OF ADDING TO THE NUGT LONG AND BRINGING IT UP TO FULL SIZE. 

*I'm not 100% ready to make the commitment, but I'm 90% sure that I will be making it very soon and the past week or so has shown dramatic improvement in the process unfolding.

 I have assumed that GDX/NUGT are in the late stages of a much larger base, one that looks like an Inverse Head and Shoulders bottom.

Whether this is a true H&S bottom or not, I don't know. Volume confirmation of a H&S top is essential to identifying a real top vs. a random price pattern that looks like a H&S top. I know that technical traders gave up long ago on volume confirmation of price patterns like H&S tops as I recall one forming in the SPX/Market in 2010, many traders assumed it was a H&S top and a rather large one and had gone short the price pattern, but we were never able to confirm the volume pattern that is an essential part of identifying a real pattern from a random pattern and the result was this....

If you can imagine what this price pattern looked like with the right shoulder at the far right edge of the chart, with no knowledge of what came next, it looked VERY much like a H&S top, but the volume confirmation was never there, thus this 8 month old top-looking pattern went on to take a lot of shorts out and rightfully so because they ignored the volume confirmation which is the psychological confirmation of the price pattern, these are not price patterns that just generate, there are psychological and emotional reasons and the volume associated with the price movement is EVERY BIT AS IMPORTANT AS THE PRICE PATTERN ITSELF.

*VOLUME CONFIRMATION OF AN INVERSE H&S BOTTOM IS EVEN MORE ESSENTIAL THAN CONFIRMATION OF A TOP AS WELL AS THE RULES ABOUT PRECEDING TRENDS.

The point is, I cannot confirm this as an Inverse H&S bottom by volume confirmation, however, whatever the pattern is, there are 3C signals in the right places whether a true Inverse H&S bottom or not.

Looking at a 69 min chart of GDX, you can see the actual price pattern is quite large as we are only looking at the right side of the head and the right shoulder in what "would" be a "complex Inverse H&S bottom", meaning more than one shoulder as they "tend" to be symmetrical.

At #1 we have a head fake or stop run below the established range. According to our concepts relating to Wall St. using technical analysis against technical traders because they are so predictable...

*The articles about our Head Fake concepts can be found here:

* Understanding the Head-Fake Move Part 1

* Understanding the Head-Fake Move Part 2

The stop run at #1 creates a momentum move or reversal based on a bear trap via short squeeze that sends price ABOVE the range in another head fake move at #2 which ends up being a "False Breakout" or a failed breakout which traders chase on the upside. When price fails and falls back into the range, a bull trap is created and the associated selling of long positions at a loss sends price quickly down to #3, where we "seem" to be putting in multiple right shoulders similar to the left side even though volume doesn't confirm the pattern, HOWEVER WHATEVER IT IS, 3C CONFIRMS IT.

Eventually we should see the reversal process completed at #3 which also means that the 10 and 15 minute charts that told us in April to expect a failed breakout, a move below the range and accumulation below the range, should repair the 10 and 15 minute charts and we expected all of this before and as we got a  breakout at #2.

As price moves above the range at #4, we once again create a short squeeze generating upside momentum as well as a breakout that longs will chase, between the two that should absorb a lot of supply and force prices higher just as a supply/demand dynamic.

The momentum from #4 should be enough to send us up and through the neckline at #5. "If" this is a true Inverse H&S bottom, volume MUST increase at the move up from here. Since 3C is confirming the basing process, the only reason confirmation of an Inverse H&S would have any value is to give us a minimum upside target.

 This is the 1 min chart of GDX (trend), what I like here is not only the movement of 3C with price on the upside at the green arrow (confirmation), but the positive divegrence as price moves lower and 3C moves higher. Also the reversal (rounding) process is becoming VERY clear, before it was a choppier price trend without any clear reversal process.

 The 5 min GDX chart shows specifically the areas in which there has been accumulation and note that they are all at the lower end of the price range.

IT has been the 10 and 15 minute charts though that were the only ones between GDX, NUGT and DUST that gave us true confirmation and this is what they told us...

 GDX 10 min , despite the accumulation of the lows, it told us that the breakout above the range would not only fail, but would create the downside momentum to pierce the bottom of the range, an area where smart money is willing to accumulate. Since that's where they'd accumulate, that's also where I expected the 10 and 15 min charts to be repaired as it is very unlikely we get any sustainable move to the upside or true breakout without those important timeframes on board.

As you can see, there has been real improvement of the 10 min chart and while there has been a nice reversal process.

 NUGT 10 min told us the same thing, this is the confirmation between GDX, NUGT and DUST that only existed on those two timeframes at the time.

Again, you can see real improvement as before we had hints of improvement, but nothing as solid as what we have now.

 GDX 15 min shows the same expectations of a false breakout, the failure that would send price below the range and the improvement of the chart once below the range, a place where smart money has been accumulating.

 Whether a true IH&S pattern or not, the 60 min 3C chart gives good confirmation at the head, neck and right shoulder areas.

DUST was also confirming and continues to do so as it is the opposite of NUGT so the leading 10 min divergence is confirmation.

As I said, I'm much more comfortable adding to the NUGT position, usually we'd get a head fake move in the reversal process that is evident on the 10-15m minute charts, that's where the best pricing would be for a new or add to position and the probability of that happening is usually around 80+%.

Otherwise, I don't feel like we are very far from the absolute bottom before a move higher, if I didn't have any position in NUGT long here and planned on one, I would have no problem opening a partial or half size position in this area. Otherwise I think the intraday charts will give us good guidance on the best place and timing, but I'm very close to adding the remainder of the position.