GDX/NUGT Follow Up

After yesterday's GLD / GDX / NUGT UPDATE in which my opinion at the end of the post was,

"I think that's good correlation in multiple timeframes. I'd take NUGT or GDX long here."

it's nice to see a small victory this morning with GDX & NUGT up, however now we have the pullback we expected earlier this summer; we have the large base, we have the late-comer longs to NUGT wiped out of their positions and are in a good place to build a solid base for a solid move which I believe could be one of the few PRIMARY Bull trends in the market over the coming year or more. In the midst of all of this, there will be trading opportunities like yesterday.

 Looking at NUGT's (3x long GDX / Gold Miners) downtrend, it's obvious that price is peeling away to the upside, there's a change in character which leads to changes in trends. Volume is also quite high recently on this daily chart suggesting a capitulation or selling event, akin to someone crying out, "Uncle!".

One market maxim is, "To make money you must see what the crowd missed" and there are numerous ways to do that, but look at what happens when I change the timeframe from a day to a 3-day chart, suddenly the candlesticks themselves show the change in character and the flame-out to the downside as well as a large head fake move below previous support where we bought (white) last time and where we sold (red) for a 40 and 50% gain. Note the increased volume as stops are run below support and the last small bodied Star candlestick, a reversal candle or loss of momentum indecision candle.


 Looking at GDX's long term year plus inverse H&S base, the last area we sold on the first breakout day invokes the theme, "From a failed move comes a fast reversal". The breakout attempt was weak and that's why we exited on the first day of it trying, despite a nice daily gain, the 3C charts weren't there and we didn't leave anything on the table as price moved laterally until the pullback. However the same principle quoted above applies to the stop-run move below support, this is a momentum builder for a real breakout of the base and mark up to stage 2, the bull market trending stage.

 Like Gold's 60 and 30 min chart and NUGT's as well, GDX's 30 and 60 min charts have remained in leading positive position, one of the largest leading positive position divergences I have seen with incredible confirmation, this looks like the pullback we were expecting in earlier this summer for a base that supports a breakout move to stage 2 mark-up or where the money is made in the bull trend.

 Note NUGT on a 5 min chart intraday yesterday broke support, ran stops as the volume picked up on the break of support where stops are piled up and popped this morning, this is a nice start and maybe a trade, but...

Ultimately, on this 60 min chart, this is what we want to see, a wider base created just like the former base, a "V" reversal to the upside here would not hold the kind of move we are looking for, so we may trade in and out of NUGT and DUST while this process is under way, but this is what we are looking for to hold a long term core long in GDX or NUGT, maybe some options trades as well.

A.M. Update

Well, here we are, the early week weakness may have just flamed out yesterday as the market is now in a short term oversold condition by breadth and probably by price as well, although I care less about the later in determining oversold. I personally think we close higher today, but it's not a move I'm ready to trust just yet.

We do have some 5 min positives in the futures starting from the overnight session like...

 Russell 2000 futures have a small 5 min positive, NQ is larger, but...

ES isn't there yet.

We also have the knee jerk volatility of the F_O_M_C minutes release today, remember the knee jerk move is almost always the wrong move as we saw with the last F_O_M_C knee jerk higher.

Probabilities are not the same as a high probability trade so the fact we probably close higher today doesn't sell me on this being a move I can trust, it needs institutional support, so I want a high probability trade and low risk, that's what I'll be looking for in the markets today, a HIGH probability trade with low risk.

AA Kicks off the earnings season today which is where I thought this market would flame out on the downside for now, but there's a distinct change in the market, bad news is no longer good, lets see how long the buy the dip crowd lasts and what we can make off this market.

Daily Wrap...

I'm not sure what I can write about today that we didn't already expect Friday, as you may recall, a wider base at last week's lows was expected for this week and we are in that area now, which may be why the SPX/RUT Ratio (custom indicator) is softening up now.

The R2K is at 12 month lows and down -7% on the year, the Dow is almost red for the year. The TLT pullback we called on 8/28 and the end of the pullback to move to a new high for the year did so today.

The $USD has now put in the biggest 2-day decline in 13 months, gold apparently benefitting from the legacy arbitrage, but oil, silver and stocks, clearly not.

Transports (remember our recent short entry to fill out the position), were among te worst performers of the day, down -2.5% at 7 month lows and -3.6% on the week. Our full size, phased in IYT short is at a 4% gain and it hasn't even started its decline. HLF is at a 30% gain for us (short), NFLX at a +4% gain and it too has a lot more downside potential, we haven't even really started. FSLR, another recent entry/fill out is almost at a +12% gain, SRTY added back Friday is up 8% and SQQQ also added back Friday is up 5.33%. I don't even consider these to be in the starting phase of decline except for HLF, even SCTY has yet to break below its top.

HYG's negative divergence sent it lower, a shorter term as the short intermediate still aren't that bad and HYG moved almost tick for tick with the SPX today. However among leading indicators, we had some very interesting signals that make sense given the market internals and breadth, for instance both Professional sentiment indicators were up in a down market, expecting near term upside. Price caught down to yields or reversion to the mean and for the most part, price caught down to the Index futures' leading negative 5 min divergences. Also HY Credit was positively divergent vs the SPX today, taken with the intraday signal in the SPX/RUTm Ratio Indicator, I'd say we've arrived at the general location of our double base, HOWEVER THIS DOESN'T MEAN THERE'S AN INSTANTANEOUS POP TO THE UPSIDE, THERE SHOULD STILL BE A REVERSAL PROCESS AND 3C NEEDS TO SHOW US THAT THE MARKET IS PROVING TO US THAT THIS BASE IS BEING ACCUMULATED, otherwise, I'm content to keep collecting gains on shorts as my personal portfolio which I have more actively traded recently, is up +9.5% on the whole just since last Tuesday, not including today's gains (4-days),


Now we know that the SPX/RUT Indicator has mellowed out intraday as the lows it was pointing to this morning , Market Update, were met by this afternoon, Quick Market Update. This indicator has been right 100% since we introduced it as a new Leading Custom Indicator.

Add to it the other LEading Indicators and it sounds and smells like we will be seeing more lateral trade and a  probable base. 

Just to add to that, we need a short term oversold condition, the S&P sectors provide that with 9 of 9 closing red, Utilities were the best performer at a loss of -.14% and Industrials were the worst at -2.43%.

To make matters worse, of the 238 Morningstar groups we track, only 4 closed green today!

There was a Dominant Price/Volume Relationship yesterday, Close Down/Volume Down, which I referred to in last night's Daily Wrap

" I call it, "Carry on" as the market tends to do what it was doing so I would suppose moderate weakness? The market breadth definitely wasn't oversold today."


Tonight's Dominant Price/Volume Relationship is what I'd expect for a short term oversold condition, the Dominant theme was Price Down/Volume Up, 25 of the Dow 30, 74 of the NASDAQ 100 , 1025 of the Russell 2000 and 334 of the S&P 500.

This relationship suggests a 1-day oversold condition and most of the time the market closes green the next day, there's no doubt about it, we are oversold short term which is the perfect place to widen out the base as expected last Friday in the Week Ahead post and we are right at the area we expected to be at.

Between all of the above, all we need to look for now is confirmation, the 3C signals and we have a nice swing trade and another opportunity to enter the bigger trades that are really starting to pay off (shorts).

Tomorrow we should start to see whether or not we can trust a move to the upside for a long trade. One thing is for sure, volatility is picking up and that's typical in a topping market.

Quick Market Update

I can show you a bunch of 3C charts, almost all of them are confirming the downside move in the intraday timeframes of 1-3 mins, I can go on about HYG's negative divegrence from earlier today or the double bottom base with a probable head fake at last week's lows,  but the simplest way to look at the market requires 2 charts...

 Our Custom SPX/RUT Ratio Indicator showed a lower low below last week's lows which the market hadn't made, therefore the market was not confirmed, it was likely to move lower, I suspect if it can still put together a base, which it probably can, by the time it has a reversal process in place, we'll likely be in the area of last week's lows.

Also, intraday looking at the same indicator, it seems to suggest the downside momentum is going to fade a bit.

Note today specifically that the indicator (intraday) is not confirming the intraday lows... I suspect we have some more downside in the market generally, but should probably see the rate of decline start to soften.

GLD / GDX / NUGT UPDATE

GLD and GDX (gold and gold miners) have diverged today (+.41% vs -2.22%)  which is not normal for them. I can see how $USD weakness recently (since opening trade in futures for the new week, Sunday) played a big part in gold's advance yesterday, I also think a head fake move is in the mix.

I can't find what caused GDX to be knocked down today other than a 1 min negative divegrence that is in the GDX chart as well as the leveraged derivative ETF's, if I had to guess, I'd say it was for accumulation purposes so I wouldn't be opposed to owning or buying GDX or the 3x long ETF, NUGT  here. As for GLD, I suspect it may consolidate a little, but if you like it, I wouldn't fret about micro-management, I'd just take it. In fact the current UGLD and NUGT positions (long) will be left open, they are already at full size.

First, Gold Futures...

 The 60 min chart overall looks good and the dip to the far right looks like a stop-run/head fake move which we often see before an upside reversal (in this case).

 The 15 min chart has a white arrow marking the start of trade for the new week, there's a slight negative divegrence, this is why I said perhaps a consolidation, I'm not too worried about it.

 This is the $USDX and note the same white arrow marking the start of trade in futures for the week, as the $USD fell, gold jumped.

Intraday 1 min, gold futures look like they'll come down a bit, perhaps re-correlate or meet in the middle with GDX, but again, for a longer term position, I wouldn't be too concerned with it.

 This is GLD's downtrend and turn to lateral where support was formed and what I believe to be a stop run under support on volume which looks a lot like a reversal process that is just about complete.

The 60 min chart looks good, but even better, when zoomed out it is leading positive in a huge way like GDX's 30 and 60 min charts and DUST has the same except as the inverse, it's a huge leading negative divegrence so there's good confirmation among multiple assets in multiple timeframes.

 This is the GLD 5 min chart where the head fake move would be, volume was up, there's a strong positive divegrence.

 And 3 min intraday it looks fine...

Only on the 1 min, like gold futures , is there a slight negative divegrence, so again, I wouldn't be too concerned with it.

GDX's 30 and 60 min charts are like GLD's they are in a huge leading positive position, you'll see the opposite on the DUST chart below.

GDX 15 min looks good

GDX 10 min looks great...

 As does the 5 min, note there's no negative divegrence for today's move down, but there is a positive divegrence on today's price action which is why I think it is being accumulated.

 And the GDX 1 min chart looks great, but if you zoom in to intraday ...

You see a "steering" divergence, not serious distribution, just enough to steer price, usually to fill an order,  this is the only place I can find a reason for GDX's decline here.

 NUGT, the 3x long of GDX looks great here on the 1 mi and appears to hae accumulated today's pullback.

And JNUG (3x long Junior Gold miners) not only shows the steering divergence, but a strong leading positive divergence on today's pullback.

This is the 3x short GDX ETF, DUST, note the deep leading negative divegrence, this is the mirror opposite of GDX's 30 and 60 min charts as well as gold's.

 DUST 15 min is leading negative so it looks like GDX/NUGT are preparing for a move higher.

The 5 min DUST is negative

And the 1 min DUST is the mirror opposite of GDX and NUGT.

I think that's good correlation in multiple timeframes.

I'd take NUGT or GDX long here.

Closing October 18th MCP $1.50 Calls

The equity long position will stay open.

MCP Position Update

MCP is up +2.72%, after being quite a bit more earlier and +27.75% over the last 5-days.

I like MCP still, I think it has a lot more upside, it hasn't even seen a short squeeze yet and it's one of the most shorted stocks in our very own MSI (Most Shorted Index). However it is reaching a resistance area, ,momentum is falling off as you can see by today's daily candle which looks like a star and the 3C charts are showing the same. I'll show you what I think will happen next.

 On a daily chart, I suspected this well defined range was seeing a stop run under it which opens up a lot of supply at cheap prices, volume for the day suggests that's what happened as well as 3C charts, but there still needed to be a reversal process or that rounding bottom possibly with a head fake move which
Volume has looked good on the up days thus far, although today it's looking tired as it hits range resistance.

 My X-Over system gave a confirmed long signal at the 3 white boxes and as is typical, the first several pullbacks were to the 10-bar average, I think the next will be to the blue 22-bar average on a 60 min chart. On a daily chart, MCP is just about ready to put in a confirmed long signal as well which is even better,

The 60 min chart in the area of the head fake and reversal process looks fantastic and still does so I'm not too concerned with anything beyond a pullback in MCP.

The 30 min chart also looks great which also eases my mind about a pullback.

Even the 15 min chart is confirming the uptrend so I'm really not concerned with this being anything more than a corrective pullback to gather some strength before pushing through resistance as this one has already put in more than a +25% gain in 5 days, it needs to shake out some of the weak hands.

 The 5 min chart is where we see the probability of a pullback and that's about as long as the negative divegrence goes out.

The intraday 1-3 min charts look like this 2 min so there's profit taking and this really looks like it will visit the 22-bar 60-min moving average.

I'm holding.

Market Update

Just like the last two trades, closing the core shorts for a quick long trade on 10/1 with 3x leveraged longs and closing those out on Oct. 3rd and re-entering the 3x long shorts which are at a gain since, I'm looking in some odd spots including the 2 and 3x leveraged long and short ETFs of the averages as they often give signals earlier and stronger.

I'm seeing a little bit of accumulation in certain areas today, at intraday lows in fact, but it's not nearly enough to cause me to take any action or close our shorts even on a trading basis, but it is something. I think market breadth will tell us something more about what's happening at this level.

Here are some charts and examples, I'll have some updates on some other assets like Gold and MCP shortly.

 There were two base patterns mentioned last night, a "W" or double bottom (mini) where price comes down to last week's lows, likely hits stops below it and that's the base or an Inverse H&S -looking base, although it will NOT be as effective as a real Inverse H&S bottom.

The most important thing when dealing with H&S tops and even more so, bases, is volume confirmation. A large H&S top developed in 2010 and had traders going short, but they didn't bother to verify it being a real H&S rather than a random pattern. Volume did not confirm the H&S top and a lot of shorts were squeezed as price moved higher. A real Inverse H&S bottom needs volume confirmation even more so than a H&S top, it may be one of the most important volume confirmation price patterns.

If confirmed, they can be a real strong bottom.

This is a custom cumulative volume indicator I create to quickly judge the volume pattern. We should see increasing volume on the advances and decreasing volume on the declines and especially at the head and to the right as it gets more and more important. This is the EXACT OPPOSITE, it's decreased volume on the advances and increased volume on the declines, BUT, it looks like an inverse H&S base and as most traders don't bother to confirm, they can probably get away with it.

What's the difference if both will bounce? The quality of the bounce as one is created from human psychology and real market demand and supply, the other is a ginger bread house created by short term market manipulation.

 Intraday breadth at least saw an uptrend today and hit above +1000.

The longer term TICK shows the trend changing slightly, still early.

As for what I've seen today thus far...

 SPY isn't doing a whole lot intraday

The 3x long, UPRO doesn't look all that good either, perhaps we are moving to last week's lows...

The 3X short SPY, SPXU on the other hand still looks strong intraday so I have no reason at all to close any short positions.

The QQQ do show a little something at or near intraday lows.

 The 3x leveraged QQQ long, TQQQ also shows some action at intraday lows so something appears to be going on, although very early in the process.

The IWM also shows an afternoon positive divegrence at a pivot low...

However if you go out to 3 mins, you can see there's no migration of the divergence, there's still a lot of work that needs to be done before we can call this a base. If anything, the chart above confirms I should continue to hold the 3x short IWM, SRTY even if I were only using it on a trading basis and not as a longer term position.

URTY, 3x long IWM just confirms the same thing.

And SRTY, the 3x short IWM, also confirms the same with a strong intraday chart.

So there's some movement, but nowhere near enough to take action other than manage the current open short positions.

As for the bigger picture, even if we do get a decent bounce off the ground, look at this SRTY 15 min chart, you'd be well justified in just sitting through the bounce and holding the 3x leveraged short, it has a very strong chart and the probabilities favor that the IWM moves lower, no matter how much we may bounce.