Monday 11 November 2013
This is an e-mail response to an inquiry on NUGT, Direxion Gold Miner Bull 3X Shares. After sending it, there was no reason to let it go to waste, so it is being posted for those who have an interest in this [wrong, in our opinion] approach to gold.
Essentially, this shows that it does not matter what the underlying is behind a chart, be it futures, etfs, stocks, they all tell a story of how the participants are positioning themselves in the market.
The writing is more casual, as an e-mail, but the chart contents and their message it what matters.
It escapes me why there is any interest in NUGT. Those considering it as a buy potential are basing their decision on hope only, for it exhibits not a single reason to be a buy candidate. I looked at other gold miner etfs, and they all belong in a dog pound. This is said from a perspective that there is one, and one reason only, to trade, and that is to be profitable. No such potential here.
This daily, and the comments on the chart, require no further comment.
On a closer activity look, shortening the time period covered to see something more than the above, you can read the comments. That volume spike in mid-September was huge supply coming onto the market. I drew an obvious TR between 60 and about 38. Even when price rallies above 60, that overhead supply from mid-September will find trapped buyers happy to sell their positions just to break even, and that higher price area will act as resistance, in the process.
Barring a major event to propel gold a few hundred dollars overnight, [anything can happen], the prospects for future rallies in NUGT will be met with a lot of overhead sellers.
Just for drill, I added a longer term, [more controlling] weekly chart:
Finally, I looked at an intra day. What you see should be no surprise based on the higher time frames. Within the TR on the 2nd daily chart, above, you see additional bearish activity in the form of a gap down on 1 November, and the ensuing swing rally high fails to fill that gap, leaving what is called “bearish spacing.” Sellers are so confident that they do not need to see if/how the gap will be tested, they just keep pressing the market lower.
No matter what time frame is considered, one is as bearish as the other.