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GDX Backtesting Sub-Channel

In the previous update on GDX (gold miners ETF, first chart below), it was stated that " A break below the sub-channel would likely bring GDX to the bottom of the primary wedge/channel. Following a likely reaction there, a breakdown below the lower uptrend line would likely bring GDX to any or all of the horizontal support level shown on this chart."

GDX 60-minute Feb 25th

GDX 60-minute Feb 25th

Since that post from Thursday of last week, GDX kissed the bottom of the channel & produced a reaction, as expected, and is currently backtesting the sub-channel from below. As stated before, the negative divergences in place on nearly all price & momentum indicators & oscillators indicated that GDX will likely break down below the channel sooner than later. I'm sitting tight with the recent official short trade on NUGT for now and will only add if & when prices clearly break below that channel (a 60-minute close below). If so, the 17-17.20 area is the highest probability target at this time. Updated 30-minute chart of GDX below:

GDX 30-minute Feb 29th

GDX 30-minute Feb 29th

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Feb 29, 2016 11:39am|Categories: Gold & Commodities|Tags: , |4 Comments

4 Comments

  1. Franklin4 February 29, 2016 12:27 pm at 12:27 pm

    The fact that you can buy LEAP options on NUGT and DUST almost has me wonder why it’s even worth it trying to play gold any other way for the long term. Just go even money puts on both through Jan 2019 and watch as the bottom completely falls out of one while the other just sort of slowly deflates into the money. Or, maybe gold stays flat and they both die a slow, lingering death for a while.

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    • ben711 February 29, 2016 12:46 pm at 12:46 pm

      I also wonder if there are any disadvantages of doing just that.

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  2. rsotc February 29, 2016 1:07 pm at 1:07 pm

    I haven’t pulled the option chains on NUGT & DUST but I can tell you that options sellers are the smart money & have most likely priced in the decay, excessive volatility & then some. That trade might work but I’d suggest doing the math as to where you expect DUST and NUGT to be at the time and make sure that you are still likely to make money after the bulk of those fat premiums have eroded away by the time those options start to approach their expiration date. G-luck if you pull the trigger & if you see some compelling values in those LEAPS, please share it with us.
    My preference to capitalize on the decay from DUST in NUGT over time is to short the one positioned opposite of where you expect the miners are heading (e.g.- DUST short if you think GDX is going much higher over the next 6+ months).
    A much higher probability trade which would almost assure a profit no matter where GDX goes over time would be a paired trade; short NUGT & short and short DUST. Essentially, you are capturing the decay on both while directly hedging your position as the gains in one will offset the gains in the other. Downside to that trade is that it is quite capital intensive not to mention the fact that your broker can call in shares (forced buy-in) on either position at any time, should they no longer have the shares to lend to you.

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    • Franklin4 February 29, 2016 3:46 pm at 3:46 pm

      Right, so basically a matter of whether you feel more comfortable battling Greeks, or brokerage firms. I decided to go the Persian route. Incidentally, the premiums on DUST were about half the strike, vs about 1/10 for NUGT. Might do the same with the Jrs later if all seems to be going according to planned.

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