It isn't just tech that's been moving in this rally. Gold stocks provided a recent chance for some short-term swing trading gains as weakness in the dollar sent gold higher. While gold stocks can already add a level of extra volatility, we juiced it up a little more by using a leveraged ETF. Here's how the trade went.
Using A Levered Gold Stocks ETF
When you look at trading on movements in gold, you have some options as to what instrument to use. Gold miners, while generally tied to strength or weakness in the metal itself, tend to have bigger movements. That's great if you get the direction right. We took that to another level by using the Direxion Gold Miners 2X Bull ETF. This aims to double the performance on a daily basis of the NYSE Arca Gold Miners Index. Levered ETFs can get you extra juice but are better as short-term trades and require quick action to avoid big losses.
Our venture into gold stocks started by noticing a near-term top for the U.S. dollar at the start of November. It got us wondering if continued weakness would set up an opportunity in gold stocks. On Nov. 21, the gold stocks ETF popped above its 50-day moving average line (1) as the dollar continued to weaken. It wasn't the first time, though. It just didn't tend to hold the line for very long. So our question was could it stay above the line this time?
In this week's podcast, Mark Minervini explains why he's always got an eye on the exit.
After a few days of sideways movement the answer looked like a yes. As the ETF surpassed the high of Nov. 21, we added NUGT stock to SwingTrader (2). It's a rare case when we add something below the 200-day line but with ETFs we are more likely to make an exception. Especially with a supportive macroeconomic trend.
Selling Into Strength
We were immediately rewarded with a nearly 10% gain the next day (3). The Big Picture noted that day that the falling dollar and yields helped fuel a move in gold stocks. With a levered ETF, we took the opportunity to lock in some profits early in the day. With a short-term trade we want to take the gifts when we get them, but we still gave it some room with the reduced position. The non-levered counterpart for NUGT is the VanEck Gold Miners ETF. It crossed its 200-day line that day and we'll often use clues from the non-levered technical action for our decisions on our levered positions.
A few days later we took another third off to lock in some more profits in the gold stocks ETF (4). The non-levered GDX held above its 200-day line but NUGT looked like that line could become resistance. We had nearly a 10% gain from our entry so locking in some more seemed prudent.
But we still had a third left and so we participated to a lesser degree in the strong move above the 200-day line the next day (5). We also set a line in the sand at the recent lows for removing the remaining shares. No reason to let the profits diminish too much.
Our Final Exit
Once that line in the sand was breached, it wasn't a hard decision to sell our remaining position in gold stocks (6). The end result was over a 6% gain for the trade in just about a week's time. But it doesn't mean our venture in gold stocks has to be done completely. It's worth noting that NUGT got support at its 50-day moving average line as gold stocks had a strong showing after the Fed meeting (7). Just because you exit a position doesn't mean it should fall off your radar completely. Always be on the lookout for the next opportunity.
More details on past trades are accessible to subscribers and trialists to SwingTrader. Free trials are available. Follow Nielsen on Twitter at @IBD_JNielsen.
