NUGT: Trade Idea.

2014年11月17日

I went long NUGT this past Monday, 11-10-2014, because on Friday, November 7th, the CCI rose above -100.Because I consider this to be a high risk trade, I bought only 50 shares. The idea is that if it does work out I will add an additional 50 shares and then let the position ride. I am hoping that this will turn out to be a mid to long term trade lasting from a few weeks to a few months.

There are a couple of things that suggest that this trade might work out. First, the RSI's on the weekly charts for XAU & HUI all dropped well below 30 three weeks back and each of these indexes have had green weekly candles for the past two weeks. Gold itself has also had green candles for the past two weeks. However, it is quite possible that the recent moves in Gold, HUI & XAU are nothing more than dead cat bounces initiated out of extremely oversold environments. Certainly this will become clear by the end of the upcoming week.

Some things of note on the daily NUGT chart:

This past Friday, NUGT closed above the 9EMA (yellow). While this is a positive, it could just be a one-day event similar to what happened in early October so it's going to be extremely important for NUGT to stay above the 9EMA in the coming week.

Next, the CCI dropped to a new low just a few sessions back and then managed to crawl above -100. This is another positive but to prove this is more than just an oversold bounce, then the CCI will have to stay above -100 and maybe follow the trend line higher.

Next, the RSI closed at 22 on October 3rd and then, while NUGT made a significant new low on October 31st, the RSI closed at 23, a sign of positive divergence. RSI positive divergence is often one of the best signals out there but to confirm that the move has legs the RSI will need to push above 50 within the next 5-7 trading days.

Next, Wilder's ADX is showing that the DI lines are looking at each other and while this is good it doesn't mean a whole lot until these lines cross. As long as NUGT doesn't fall off a cliff in early this coming week, then those DI lines could get a bullish cross by Wednesday or Thursday. Such a cross is necessary to prove that NUGT wants to and can go higher so this the most important thing I'll be watching for in the week ahead.

Next, the 20/20 sto has had a bullish cross but the problem is and the reason why this is such a risky trade is that the 20/20 sto has had bullish crosses in the recent past and absolutely nothing has come of them. In the coming days I will be watching for the blue sto line to pull away from the orange signal line and for the signal line to turn up as more evidence that NUGT can and wants to go higher.

That's the trade and the reasoning behind it. Because there is a very high probability that this could blow up in my face, I'm starting out small. If NUGT pushes higher, then I will likely add the remainder of my 50 shares when the 9EMA pushes up through the 20MA, which for me would be a legitimate 'buy' signal in the daily time frame.

For those of you thinking that maybe I'm on to something just remember that it's always better to be out wishing you were in than to be in and wishing you were out.

Be careful and GL in the week ahead.