GDX / NUGT /GLD Update

It was almost three weeks ago that we took our NUGT long off the table for a +40 and +50% gain, it turns out if we were willing to risk that 45/50% gain and sit through 3 trading weeks of chop up and down, we could have gained another 8%, but considering we made that +50% gain in 3 weeks, I don't feel too bad about having locked in the gain to wait for better weather to re-enter what I think will be one of the strongest trending long positions over the next year or longer.

Pre-F_E_D market intervention, gold miners use to lead gold, after F_E_D market intervention gold miners lagged gold terribly, but now that the F_E_D is moving out of accommodative policy and back toward policy normalization which means the exact opposite of accommodative policy and should have the exact opposite effect on the market as they hike interest rates from their ZIRP (Zero Interest Rate Policy) back toward their longer run average of 4% and end all QE as the taper (according to yesterday's minutes) is set to go out with a bang and final taper of not $10 billion a month, but $15 billion a month until QE ends and interest rate hikes start. As this is happening, many correlations that have been the norm over the last 5 years are starting to change which is something I predicted years ago in a 5-part video series in late 2007, "The economy is not going to get better until it takes its medicine. Sure we can put off the inevitable, but only make it worse. If you have food poisoning and feel nauseous you can fight it as long as possible, but until you take your medicine and get the ugly stuff out of the way, there can be no reset". My other prediction was that we face the opportunity of a lifetime, in fact probably an opportunity that no one alive has ever seen and it will be "Those who figure out the new market dynamics first who will win this opportunity".

Along those lines, we are already seeing changes like the return of gold which we called a top in back in 2011 and predicted at least an intermediate downtrend if not a primary downtrend in gold, and this at a time when everyone was a goldbug and it was very unpopular to say anything negative about the future of gold if it wasn't all roses.

Our 2011 gold top call was correct as was our trend forecast, however in 2013 we noticed a change and we've been tracking it since.

While gold miners may not actually lead gold in terms of price divergences, they are leading gold by a 2:1 margin industry group gains vs gold which is something that was missing under the F_E_D driven gold rush.

Just Tuesday of this week I saw major improvement on short term charts in GDX and NUGT which led to this post Tuesday, Trade Idea: GDX / NUGT however I said I would wait until it looked like NUGT was in a less risky area before I entered ending the day with this post, No long Entry for NUGT/GDX yet.

When you have mixed or inconclusive signals, it's amazing how quickly things can change, by the A.M. Update Wednesday morning I had said,

"The Minutes are released at 2 p.m. if they weren't already leaked, judging by yesterday's trade activity, I'd guess they were leaked, which may have me reconsidering some positions I was considering such as NUGT, I'm thinking it may see a head fake move through resistance and then a pullback, but I'll wait to see if that happens and what underlying trade looks like if it does."

It turns out, so far that paragraph was accurate right too the details. Here's Wednesday's close for GDX/NUGT...

 Yesterday , the same day I wrote the above paragraph before the open, NUGT / GDX broke out above resistance,  I'm thinking it may see a head fake move through resistance and then a pullback

Then during the day I followed up that analysis with these posts, GDX/NUGT Update and GDX / NUGT. 

While the intermediate charts suggested the strong probability of a pullback, the short term charts lacked confirmation or clear signals and it seems the rapid improvement on short term charts the day before was about nothing more than yesterday's breakout above resistance, something I suspected would be a failed (head fake) move.

So far when counting today's close, it looks like that analysis was right on.

Today's close down created a bearish engulfing downside reversal candle on heavy volume meaning the breakout above resistance as suspected was more than likely a false or failed head fake move as I wrote early Wednesday morning before the open.

The charts in Junior miners seem to be clearer. While I'd love to make some extra money by trading DUST (3x short gold miners) while GDX pulls back, make no mistake, the large base in GDX and NUGT suggests these two haven't even broken out of the stage 1 base area, much less stage 2 where 80% of the gains are made in the trending phase. the take-away is , "If we can make extra money in DUST while we wait for the pullback in GDX/NUGT to end where I'll be a buyer of NUGT again, then great, but I would not risk the +40 & +50% profits already booked in NUGT if the DUST trade signals are not strong and clear.

GLD which is closely correlated to GDX/NUGT...

 GLD's long term 60 min chart has a strong, large base able to support a multi-year trend, however near term...

The 30 min chart has been in a negative divegrence for nearly 3 weeks as well as a choppy range that is a portfolio/position meat grinder.

And since the end of window dressing starting on July 1st, there has been a clear 5 min leading negative divegrence making the moves in GLD above the range look like confirmed head fake moves that will likely see quick moves to the downside capturing bulls in a trap.

This is what I didn't want to get caught in with GDX/NUGT.

 GDX and NUGT have had a strong 15 min (intermediate) negative divegrence which has held them in a range not worth trading so the exit of NUGT to protect gains up to +50% makes sense, The recent strengthening in GDX that I thought may mean the consolidation is about to end seems to have been for nothing more than a head fake move above resistance.

For an Inverse H&S price base, the most important volume confirmation is the breakout which should see huge volume, if you look at the daily charts above of yesterday's breakout, you can clearly see without any help from 3C the breakout is very suspect on average volume.

This is a 5 min chart with some of the recent strengthening mentioned at the white positive divegrence, but it seems that was only for a head fake breakout as the next day (today) it's leading negative.

I have no problem trading DUST until GDX/NUGT are ready to buy long again after they take a rest and much needed pullback, however I won't trade DUST just because NUGT and GDX are expected to pullback, DUST MUST have its own set of strong and clear signals which at this time,  it does not have.

Perhaps something changes tomorrow, but the larger trade here has always been GDX/NUGT long, DUST is a bonus if it works out, but it's not worth the risk without clean. clear and confirmed signals just like any other trade.


I'll of course let you know when I'm looking at re-entering NUGT long and /or GLD.