GDX/NUGT Update

When I closed half of the NUGT long for a +46% gain or so, I couldn't bring myself to close the entire position, it was a "Just in case" precaution, I wanted to take some of the substantial gains off the table being there were and are signals for a pullback, but the first thing we should always respect about the market is it is dynamic and that's the last thing human emotion wants to respect, we want assurances, we want surety, we want guarantees, THE MARKET IS THE LAST PLACE TO FIND THOSE THINGS. 

Why do you think so many people flock to CNBC and Cramer? Because they offer what "sounds" to be, "guru-like" assurances, they speak as if they KNOW and people love that even though I recall CNBC saying 2007 was not a bubble, I even remember them having the author of "Dow 20,000" on just before the market started to crash (of course as always, in retrospect).

The BEST we have if we are truly honest about what the market is and how it is probably the MOST DYNAMIC entity on the face of the earth is, PROBABILITIES. Probabilities are what separate us from pure speculators/gamblers and we look to make a case based on objective evidence that stacks the probabilities in one direction or another, while doing our very best to leave our opinion out of the matter and let the market tells us which can be much harder than we realize at times given we are so vested in the outcome, personally and financially.

The point is, with NUGT, I can't be sure that it will pullback so I took gains and left half the position on because I know the probabilities of NUGT/GDX going much higher over the next 6-12 months is VERY high. You may even recall seeing pullback divergences in NUGT and GDX, yet we didn't take the positions off and doubled our gains as the divergences were rebuilt, not so much run-over.

I suspect the biggest problem for the market and the F_E_D is inflation, there's a trend, it's not noise and that means the F_E_D will have to hike rates, I've been saying it since the last CPI came in just before the last F_O_M_C and what do traders buy on inflation expectations? Gold.

Before QE, miners led gold, recently miners have led gold as QE is being phased out. With inflation on the rise, the F_E_D, as I have been saying every day, WILL HAVE to HIKE RATES.

What does Bullard say this morning?

• BULLARD SAYS MARKETS DON'T APPRECIATE HOW CLOSE FED IS TO GOALS
• BULLARD SAYS HE'S TRYING TO PUT EMPHASIS ON CLOSENESS TO GOALS

What are the goals? 2% inflation, Core CPI is already running hotter and their goal was 6.5% unemployment which we are already below, their "GOALS" have been met and surpassed.

The usually dovish Bullard is saying, "The Market doesn't understand how close we are to tightening" which is the case I've made because with inflation running hot, the F_E_D will HAVE NO CHOICE. Why did the F_E_D feel the need to put Bullard, a known Dove out there to carry this message? Because they are serious.

As far as how that relates to our NUGT position and perhaps some gold positions to come...lets stick with probabilities, charts...

 Looking at the larger picture in GDX (Gold Miners), we have an inverse H&S bottom and price sitting RIGHT AT THE NECKLINE, you don't get any closer to a stage 2 breakout than where we are right now, thus where NUGT (3x long Gold Miners) is right now. 

Look at the 2 hour 3C trend during this bottom formation, it's the exact opposite of what we see in assets like the SPY, QQQ, DIA, IWM, as it is leading positive in a HUGE way.

That's where the probabilities are and there's a good reason considering inflation, at least for now, when the F_E_D hikes it may be a different story.

NUGT 2 hour with confirmation of the same divergence on the 2 hour.

NUGT 60 min, what we expected to be a head fake move below the range to run stops did run stops, we expected accumulation in the area, there is accumulation in the area below the range, what we couldn't see that far in advance is another right shoulder forming and then rallying up to the larger picture's neckline, that's what we have right now.

The negative divegrence to the left is the pullback from the neckline to form the additional right shoulder area.

Since hitting the neckline, this 15 min chart has been giving signals for a pullback, not heavy distribution, but a likely buyable pullback. This is the reason for taking the gains off the table (half the position) as I would like to add the other half of the position back after the pullback has shown it has been accumulated and right before it starts moving up again, essentially getting a better price and adding more shares with the gains taken off the table.

However... Yesterday I set alerts for higher prices in GDX and NUGT , areas where I'd consider taking the rest of the position off, maybe adding a DUST long for a pullback in NUGT as the 1-5 min charts in NUGT improved.

I have to wonder if Wall St. knows something (as they always do) that we don't, in essence since the Core CPI last week, things have changed.

 The 10 min NUGT chart and a recent positive divergence. Perhaps this is not so much about selling NUGT at a higher level and getting ready for a pullback, perhaps this is, "The situation has changed since last week's CPI".

 The 5 min chart's divergence is where we see the first signs of institutional activity, this doesn't look like market makers adjusting inventories for a pullback or filling sell orders at the best levels before a pullback, this is starting to look like, "The situation, the timing of a major event has just been pushed up".

The trend of the 3 min chart is very positive, which would migrate to a positive on the 5 min and the 5 min divergence migrates to the 10 min as the underlying flow of accumulation gets stronger and this even in to a slight dip!

The 2 min chart shows the same, accumulation in to a slight dip which is where smart money would want to buy as they aren't chasing prices higher, they can't afford to with the size of their positions.

I'm really starting to re-think this entire NUGT situation. For now, I have to flow with the dynamics of the market and not fight them with opinions or what we "did see" a week ago, if the situation has changed, there's obviously good reason for it to have, CPI data.

I'm not sure if I'll add back the other half of NUGT, but for now I can't sell the remaining position still in place.