Is Gold About To Turn Bullish? A Look At Direxion Daily Gold Miners Index Bull (NUGT)

Zinger Key Points
  • NUGT is a double leveraged fund that is designed to outperform the NYSE Arca Gold Miners Index.
  • If NUGT confirms its trading in a bear flag, the inverse ETF (DUST) may serve as a better play.

Direxion Daily Gold Miners Index Bull 2X Shares NUGT shot up over 6% higher after the market opened, but the move higher was hampered by the general market, which saw the S&P 500 falling about 0.7%.

The gold miners sector recently enjoyed a long bull-cycle, which lasted from Jan. 28 to April 18 of this year and caused NUGT to soar 102% higher during that timeframe. Since late April, NUGT has erased all of its gains, however, plunging 63% from its 52-week high of $82.86.

NUGT is a double leveraged fund that is designed to outperform the NYSE Arca Gold Miners Index. The ETF tracks a number of gold and silver mining companies through its four holdings, with the VanEck Gold Miners ETF GDX and the U.S. Dollar making up 91.27% of its weighted holdings.

The other two funds making up the remainder of NUGT’s weightings are Goldman Sachs Trust Financial Square Treasury Instruments Fund Institutional, weighted at 8.49% and Dreyfus Government Cash Management Funds Institutional, with a 0.23% weighting.

It should be noted that leveraged ETFs are meant to be used as a trading vehicle as opposed to a long-term investment by experienced traders. Leveraged ETF’s should never be used by an investor with a buy and hold strategy or those who have low risk appetites.

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The NUGT Chart: Despite falling to trade mostly flat intraday on Friday, when NUGT reached its high-of-day, the ETF confirmed it's now trading in an uptrend by printing a higher high above the July 18 high of $31.52. On July 20, NUGT printed a higher low above the July 14 52-week low of $28.13, which negated the downtrend.

  • NUGT is trading in a rising channel pattern between two parallel trendlines. The pattern is considered to be bullish unless the ETF breaks down from the lower ascending trendline on higher-than-average volume. Unfortunately, the rising channel paired with the steep downtrend that occurred between June 3 and July 14 may have settled NUGT into a bear flag pattern.
  • If the bear flag pattern is recognized, traders may choose to take a position in the leveraged gold miners ETF bear, Direxion Daily Gold Miners Index Bull 2X Shares DUST.
  • NUGT is trading below the eight-day and 21-day exponential moving averages (EMAs), with the eight-day EMA trending below the 21-day, both of which are bearish indicators. The ETF is also trading under the 50-day and 200-day simple moving averages, which indicates gold is currently in a bear market.
  • NUGT has resistance above at $33 and $37.68 and support below at $28.13 and $24.15.

See Also: Eliminating Buy And Hold Myths

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