Sunday, January 1, 2012

CDY, GDX with BPGDM, GDXJ, NUGT Analysis

With trading about to begin for the New Year 2012, how about we take a look at the gold miners and see where they are positioned. We will begin with a couple of charts of the stock I wrote about a week ago, Cardero Resources Corp (CDY) , then examine the status of Market Vectors Gold Miner ETF (GDX) with the Bullish Percent Gold Miners indicator ($BPGDM) from StockCharts and conclude with a look at both the Market Vectors Junior Gold Miners ETF (GDXJ) and the Direxion Daily Gold Miners Bull 3X ETF (NUGT).

I wrote about the bargain price of Cardero Resources Corp (CDY) about a week ago. At that time the stock traded for $0.95 per share and at a Book Value of just 57 cents on the dollar. Since that day CDY was made a little improvement in its price, closing last Friday at $1.02. 

So did I buy CDY at $0.95? Nope.  But I have heard from readers who did buy CDY at something close to $0.95 and I am very happy for them! I placed a Good til Cancelled (GTC) order to buy CDY at 90 cents - which has not been filled. Most likely I will raise my offer this week and make sure I get some shares. 

Let's begin with a look at the weekly chart of Cardero Resources Corp (CDY). 

The most interesting point of this chart is the 6 year long resistance line that currently is at about $1.86 overhead. I am using a moving average of 40 on this weekly chart that roughly equates to the 200 dma. We note that a couple weeks ago CDY made its first (failed) attempt to reach and get through this 200 day moving average equivalent.  

This second chart is a daily of CDY. The moving average of 40 is still used (unfortunately) but the 200 dma currently comes in at about $1.28.  A shorter term overhead resistance line is identified and is also at about $1.28. The longer term resistance line identified in the weekly chart (above) is still seen as $1.86 and likely to be at $1.80 by early March.

Moving on to GDX, let's first take a look at its infamous 2008 low with the $BPGDM indicator from StockCharts. This particular indicator measures the percentage of gold miner stocks in the HUI index (15 mining stocks) that currently have a BUY signal on their point and figure charts. I have programmed the ThinkorSwim platform to render the $BPGDM indicator while showing the price movement of GDX in the background.

Usually the $BPGDM indicator does a very good job of spotting lows and highs in the GDX/HUI mining index.  My sense is that it does that within the context of  a trending higher or lower environment. However, at turning points in major trend direction, $BPGDM  gives a better interpretation if one considers its divergences with price movement. 

I know this sounds a bit confusing, but let me attempt to explain.

This indicator is the percentage of mining stocks in the $HUI index (15) that are yielding a BUY signal on their point and figure charts. My take on point and figure charts is that they do not accurately trigger BUY signals without a considerable delay at turning points. In other words, whereas the True Strength Index (TSI) indicator is a leading indicator, the $BPGDM is a lagging indicator in turning point situations. 

Why?  Well, when the GDX/$HUI is on a SELL signal with the $BPGDM indicator, the $BPGDM  does not issue a BUY signal at a trend reversal without a considerable lag.  My explanation for this is that not all stocks within the mining index conclude their bottoming process at the same time. A few inevitably bottom after the majority - and before the majority achieve a buy signal per the definition given by the point and figure charts indicator. In other words, there are a few stocks that reach the SELL definition before several others reach the point and figure BUY definition - thus driving the indicator lower towards ZERO (when in fact the majority of mining stocks are rising).

Anyway, my analysis is that we are close to a D-wave bottom in gold and that the miners may have already put in their bottom, though I think it highly likely at some point in the next week or two miners will again fall towards a retest of their low.

Above is the current daily chart of GDX. The highlights of this chart are the bullish bounce off the lower trend line of the 14 month megaphone pattern. Other things to keep in mind include the TSI below ZERO, the positive divergence already in place, the trend line break that appears imminent, and the ZERO crossover of the TSI that will inevitably occur. 

The current daily chart of GDXJ is essentially more of the same, like GDX. Most likely the absolute bottom is in, but it would not surprise me to see a final shake out.

Our final daily chart is of Direxion Gold Miners Bull 3X ETF (NUGT). As readers may recall, I own (what is for me) a substantial position in NUGT, acquired at $20.25. When I added the megaphone resistance lines to the dates that were defined on both GDX and GDXJ, I began to chuckle. I am aware that this ETF went from being a 2X to a 3X sometime in the recent past and that perhaps that is the accurate explanation for this chart. Beats me and who cares? But what I find amusing is the complete breech of the lower resistance line of the megaphone pattern. 

The breech of the lower resistance trend line is remarkable. Whatever the explanation, the purchase of NUGT below that line is a gimme, at least in my opinion. 

However this plays out in the short term, I am convinced that one can and will make substantial gains with the purchase of miners, right now, in the next few months. 

And you know what?  I have not written these words for many months. 

Good luck riding the Gold Bull. Sometimes, like now, the best thing is to just believe in the bull's intentions to continue much much higher - and not get thrown off when there is a  downdraft - as I expect there may be in the relatively near future.



  1. Looks to me like in most of these charts, the expanding megaphone patterns, which are bearish, have turned into down sloping wedges, which are bullish. Ray of hope?

  2. Thanks John!
    My chart Amex Gold Miners Index GDM D1 shows on 1475,00
    Vincent (twitter account)

  3. Hi John,

    Thanks for all the effort you put in keeping your site up to date. It is because of your explanation on the TSI, I got going building my own trend system. To honor your work I added your site to my blogroll and I intend to keep my roll short.

    Prosperous trading in 2012!


    PS: I wanted to post a chart of gold with my trend system, to show you what it looks like, but it seems this comment box is text only. So I e-mailed it.

  4. If you believe CDY is heading for $1.80 then why didn't you buy it for .95? Instead you put in a lower buy order for .90 and missed it, I don't understand. Did you end up buying any? Sitting at $1.53 today, I hope you did!