Gold Stock Indicator: Sell DUST

Our Gold Stock Indicator is supposed to indicated whether to buy the Direxion Daily Gold Miners Bear (DUST) [short gold stocks x 3] or the Direxion Daily Gold Miners Bull (NUGT) [go long gold stocks x 3].

On January 26, 2012, the Gold Stock Indicator gave an indication to “buy” the Direxion Daily Gold Miners Bear (DUST).  On February 7, 2012, we posted that the indication was for gold stocks to go down.  Below are charts indicating the price level for the Philadelphia Gold and Silver Stock Index (XAU) and short gold ETF (DUST) on both dates .

DUST XAU

Now that DUST appears to be in hyper-drive and the gains that have been registered, based on the closing price of DUST on February 7th and today, we recommend selling DUST.  At $41.68, DUST is up over +32% from the closing price of February 7th.  The gains achieved so far exceed the average gain of +26% in DUST represented in our chart of the Gold Stock Indicator since December 2010.

Based on the current standing of the Gold Stock Indicator, we believe that there is tremendous downside action for gold stocks.  However, we believe that if there is another washout in gold stocks, a buy indication for Direxion Daily Gold Miners Bull (NUGT) [go long gold stocks x 3] will quickly follow thereafter.  The moment the indication to consider buying NUGT arrives we will let you know.  For now, SELLING DUST at the market should be considered.

There are several caveats that we adhere to in regards to buying DUST or NUGT:

  • First, DUST and NUGT are speculative trading instruments that are not for the faint of heart. If you cannot accept declines of -15% then do not participate in these transactions. As with the January 26, 2012 buy indication for DUST, there is considerable downside volatility. It is best to assume that you’ll experience a significant decline in value immediately after you purchase either of these ETFs.
  • Second, set a target amount that you’d be willing to accept if the position goes your way and get out at that target amount. Although you may give up a considerable amount of the upside with a low target, we’d rather that you do no experience the gut wrenching loss that goes along with being in such volatile products.
  • Third, we expect that between now and  May/June 2012, there will be a major bottom in gold stocks and the current trend will be reversed.  This will throw off our ability to accurately call the intermediate moves in gold stocks. Once the current downtrend is complete we’ll have a long bias towards gold stock investing.

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