The back story: I am bullish on gold long-term, but the story looks very different to me on a short-term swing-trade basis.
Gold and the Van Eck Vectors Gold Miners ETF (GDX) has been running strong for two solid weeks, but the indicators changed Monday with the crossover I was looking for between the 13-hour and 30-hour moving averages, a pretty reliable indicator that a short-term fall is coming.
Today will be the make-it-or-break-it day for this play.
How I am playing it: I bought 1,000 shares of Direxion Daily Gold Miners Bear 3x ETF (DUST) late Monday but if I see confirmation today I will short the GDX.
I don’t think GDX will make new lows, but I do expect a pullback of 5 percent in short order.
What I’m waiting for: In a word, confirmation. Ideally, GDX will go up just a little to re-test the high it had, and then start to fall. If I see that up-move and GDX comes off of resistance, it’s time to act.
The long-term/short-term implications: For long-term investors, the challenge is to ignore the short-term emotions so that they can buy-and-hold their way to profits. For a trader who also has a long-term view – I’m not bearish on gold; it’s not going bankrupt — the challenge is making sure that big-picture view doesn’t color how short-term charts are read. You can short a security while still believing it’s a good long-term buy.
As a trader, I’m looking for times when I think the market has gotten ahead of itself, when it’s too optimistic or pessimistic and I can take advantage of that.
What’s next: The chart tells me GDX is due for a 5 percent pullback; if I can get that in the next week, I’ll be happy. Moreover, however, if I see that dip, I’ll likely turn around and buy GDX for the next leg up. Don’t think of that back and forth as being confusing; think of it as trading.
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 no GDX shares or options, but was planning to short the ETF as described here; he held 1,000 shares of DUST purchased July 24, and was hoping to sell them on a decline in GDX.