The back story: I am bullish on gold long-term – I believe it will be up from current levels six months from now – but I have seen plenty of opportunity to bet against it along the way. That’s happening again now.
Gold is a fear trade and the hurricanes put a lot of scare into the markets. With Hurricane Irma winding down and volatility – which has been trading together with gold — calming down with it, it looks like gold is due for a pullback.
The technical story: I have been watching the 13- and 30-hour simple moving averages on the Van Eck Vectors Gold Miners ETF (GDX), and for the last two weeks GDX has been climbing short-term, but now it looks like the 13-hour will cross over – going from top to bottm – which typically signals a short event.
What I am looking for: As much as I expect a downturn, my first indicator is actually a little rebound in the GDX. A small move up, and I will be looking to add to my current position in GDX puts, while also looking to buy the Direxion Daily Gold Miners Bear 3X ETF (DUST).
If GDX were to cross $25.70 and hold it for more than two hours, I would scale out of the trade because it means the trend is still going up. If it can’t hold that level, however, I think there is about a dollar move to the downside on GDX to be had here.
Jeff Bishop is lead trader at TopStockPicks.com. He runs short-term trading strategies, primarily using leveraged ETFs. At the time this was published on RagingBull.com, he held 150 Sept. 15 $26 puts on GDX, and was planning to trade more as described here. He had no shares, options or open orders in DUST, but was planning to trade the ETF as he explained in this article. He has traded both ETFs regularly throughout 2017.