This is NOT financial advice. Do your own due diligence. This is for educational purposes and a follow up on my options play with GDX that I have been documenting. At the end of this upcoming week, I will publish where I am with these to show you how you can actually make money with all of this chop and you don’t need $2500 gold to make serious bank. It’s risky, but it’s worth showing how it can be done on flat prices.
I published an article yesterday on my day off about the relationship between gold and GDX. My findings have shown that it APPEARS with gold’s next leg up – whether a range bound move that fails or a breakout of the yearlong slug – that GDX should outperform it.
This is the data over the last year that shows the gold to GDX ratio. What this shows is that at times, gold outperforms GDX, and other times GDX outperforms gold. What this data has shown is that since any pullbacks in January/February, that GDX has fallen disproportionately to gold – on its one year mean.
What this shows is that this ratio is on the higher side. IF we can assume gold is going up, even for a 4 week stretch – then GDX is destined to outperform.
When you look at the GDX charts, there’s a couple things here with patterns I’d like to look at. This is a 2hr chart, which I don’t tend to look at much. But I did it because I wanted to probe more into the broadening wedge that, while bullish, has drawn a structure to it that stands out…
- The RED circles are the last two beat downs. Both occurred on the 16th or so of the month. I mention this in my silver charts, that around the 18th every month there appears to be a concerted effort to knock recent longs out of the position for buy backs several days later.
- There is a red trend line I drew over the last two. IF this holds true, it’s POSSIBLE Monday and/or Tuesday we get a slight pullback in gold. Why? When we have these strong moves in metals, one way or the other, you do see a lot of the speculative traders that got in low take profits off of the move, watch the pullback, then buy in to the next rally at a discount. It stands to reason there could be a hit on gold Monday that may take back 1/3 to 1/2 the move on Friday. This is the black dotted line down.
- IF this happens, I can see the GDX black dotted trend line being hit. It looks like this would be the last touch to the line before a strong move up.
- The move up here has a green line, and has a steep angle to it that replicates the angle of the last 4 moves.
- This could reveal a price target of $36.63 on Sept 7th.
The question then is – does it bounce down from this or continue higher?
I wanted to look at how you might measure a broadening wedge. Not that it will happen exactly like this, but what would it look like, if the projections are close?
Also there’s this to show breakout…
I see ABCD touches, so let’s do that with this chart zoomed out.
This is my bullish projection, IF we are starting a daily run up for a few weeks. You can see the wedge being completed somewhere around Sept 9th, perhaps at $37 or so. You then see it potentially break out from there, pull back, and then do the measured move up.
How am I playing this with my options?
I’m getting killed on my GDX options, so hoping this run up to Sept 9th or so saves my bacon. I’ll probably hold these until about Sept 13th. Those circles I pointed out could have been banks shorting GDX to reduce what they have to pay out in options on the 17th of these months. It could be pure coincidence, but not likely. Therefore, I may be cool with walking away with 75% of my investment in the GDX options, getting crushed on the $38 and $39 ones but making bank on the $34 and $36 ones.
What I may do then is let the shenanigans play out on the 17th through the 25th or the like and wait for a move back up which might confirm that measured move up.
At the time I’ll be losing money now on these GDX options, my SILJ options by this time may be coming to life and I may rotate some of those profits into like a $38 Jan 21 2022 GDX or the like.
One thing to keep in mind – tapering COULD start in as early as Sept. This could be what triggers the pull back in GDX expected. So I might look to get what I can as early as Sept 5th. I’m up like $22,000 in banked profits this year, so I might want to take some of these as tax losses and get into cash and HOLD most of Sept waiting to see what happens with taper talk.
The ideas coming out now are that IF they taper, this is what can cause a stock market accident – and with that, the Fed may have to try and reverse course, and quickly. IF they do, this is rocket fuel for gold and gold stocks, as it will signal the fed CANNOT raise rates to match inflation. The THREAT of tapering has been the jawboning that’s kept gold and silver in check the last few months.
This all suggests that gold is about to have a good H2, and with that, I have shown with my article yesterday that my expectations are a reversal to mean where GDX should lead gold in performance.