Most everyone agrees, trading isn't easy. But investors are told over and over by the experts that "you can't time the market." Kiplinger wrote an article years ago that quoted a money manager saying that timing the market is like "playing Russian roulette with two bullets in the chamber."
A quick glance at the news and you can still see the attacks on market timing from CNBC, Motley Fool, MarketWatch and Barclays with the following titles:
"Trying to time the market is never a good idea"
"Why Investors Shouldn't Try and Time the Market"
"Here’s why you should never try to time the stock market"
"Why you shouldn’t try to time the market"
While there is credibility to the buy and hold approach to investing, most investors today turn to index funds and just "be the market" rather than turn their wealth over to an advisor that sticks them in mutual funds for the commissions. Most advisors are content these days just wining and dining clients as they take their 1% management fee. If you are going to just put your money into an index fund, I ask the question in my latest book Illusions of Wealth: Do you need a financial advisor at all?
Yes, You Can Time The Market
Pardon me while I disagree with Wall Street and those who provide investment advise, who mostly are freelance journalists who interview those who sell mutual funds and managed accounts to slant opinion towards what they sell. I simply think investors can beat the market, and they can do it with the riskiest (outside of options) of all vehicles: triple leveraged ETFs.
The Horror Stories Of Buying And Holding Leveraged ETFs Like JNUG And NUGT In Particular
Many of you who engage in trading hear the horror stories of those who get stuck holding leveraged ETFs, whereby they time their purchases and, instead of keeping a stop and selling, hold onto the trade and think it will come back.
When the Direxion Daily Junior Gold Miners Index Bull 3x Shares ETF (NYSEARCA:JNUG) took off in 2014, the returns were triple-digit, and everyone was doing well no matter when they got in the first half of the year. But July came and the crash began, and to this day it hasn't recovered. I know of one person who had told me he lost over $600k before he came to us by buying and holding JNUG, and another who lost a significant amount holding the Direxion Daily Gold Miners Index Bull 3x Shares ETF (NUGT).
Part of the confusion with leveraged ETFs is that those who get stuck holding them don't realize the natural decay over the long term in some of these leveraged ETFs. Take a look at the comparison of JNUG and the Direxion Daily Junior Gold Miners Index Bear 3x Shares ETF (JDST) over the last 200 and 260 days. You would think that an ETF that is long mining stocks would have returns opposite to that of the ETF that is short mining stocks.
Data can be found here on the Nasdaq site.
If mining stocks follow gold, then why was the SPDR Gold Trust ETF (GLD) about flat the last 200 days and JNUG down -58.85%? Why was JDST down -46.97%? The truth lies in the fact that each ETF needs to be traded on its own based on its particular price action, but no, not anywhere close to a buy and hold approach on either JNUG or JDST for any more than a short period.
Can You Do Better Trading In And Out Of ETFs Like JNUG?
Anyone who has been holding JNUG since my last article on July 19th is up 7.8% at the closing price of $18.98 on Friday, August 25th. If you follow my comments here on Seeking Alpha, you can see how I trade in and out of various ETFs like JNUG. We follow 32 of them, but I have a particular interest in gold-related ETFs because that is my business.
But I remind traders that there are plenty of trades to profit from besides metals and miners, and that's what we have been doing. Please go here to see the past 2 weeks of results, with some in and out trades beginning 8/9 and ending 8/29.
As you can see from the results, trading in and out of leveraged ETFs can be profitable. This is not a long-term hold category that investors who come to Seeking Alpha will benefit from, but a unique way of trading that I try and help investors understand. While I do address the long side of trading gold below, the key to trading leveraged ETFs, the topic du jour, is to have a trading plan. If you read through some of my recent articles, I lay out some of the trading rules you should follow before contemplating trading leveraged ETFs. One of my articles was titled "Make Trading Fun Again," and that's what you should be doing when you trade, but you must follow rules. The most important rule is keeping a stop when wrong. It's the only rule that if you break, you will lose in you trades. The second rule being, taking profit. Personally, I like trading leveraged ETFs with no bullets in the gun. The guy that Kiplinger interviewed about the risk of investing in leveraged ETFs just didn't have any plan to do so. Of course, there is risk with no plan.
Gold Showing Strength Having Touched $1,300, But What's Next For It And JNUG?
Gold will continue higher for the time being, but we won't have a straight line higher. We should see some resistance around $1,315, a pullback of sorts, and then a march towards $1,400+ on a macro level. Back in June, I said that there would be a gold and silver miner bounce coming and to be long by the 20th of June, when JNUG was at $17.15. It hit $20 a week later and has been bouncing around a little bit, but is ripe for a bigger move now.
Other Indicators That Help Us Distinguish Gold's Next, As For You Longer-Term Investors Gold Is Headed To $1400 Before We Lighten The Load and Look For A Top
When you look at the long-term chart I put up in a recent article, you can see where gold is headed for the longer term. I see a move to $1,400 in the cards, and once we reach that, we'll have to look for other signs if we should be taking profits or not. We have to go to a 5-year chart to see when we were last over $1,400 in gold back in August of 2013. I think this will be an area to consider selling some gold, but will naturally be writing an article on Seeking Alpha to give guidance.
In the weeks ahead, JNUG in particular will benefit, along with the VelocityShares 3x Long Gold ETN (UGLD), the VelocityShares 3x Long Silver ETN (USLV) and NUGT, which we are all long. We are seeing the dollar weaker and headed to the $88.15 mark eventually (see chart). We also see the all-important inverse correlation of metals, with the USD/JPY getting weaker. Watch for that April 18th low price of $108.42 on the second chart as confirmation of the continued rise in metals and miners. Also, interest rates falling has helped the buy the dip traders of gold lately too, and let's see if the Direxion Daily 30-Year Treasury Bull 3x Shares ETF (TMF) can get past $22.61 for further confirmation of the gold bull, which you can see we are close on the 3rd chart.
Of course, a market decline and some fear with the VIX moving up wouldn't hurt. The first chart below shows that 2017 is a potentially dangerous year for stocks.
Doug Eberhardt
Sign up for the announcement of my upcoming book, "How To Profit In Up and Down Markets" by going to https://profitinupanddownmarkets.com/ Author of Buy Gold and Silver Safely and Illusions of Wealth. ETF Trading Service where we trade triple leveraged ETFs and seller of physical gold and silver precious metals through Buy Gold and Silver Safely
Analyst’s Disclosure: I am/we are long JNUG, NUGT, UGLD, USLV, UGAZ, WEAT, UWT, UVXY, FAZ, TZA, SOXS, BZQ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
We will trade in and out of these ETFs and just because as of the date of this article it says we are long, doesn't mean we are still long. Follow the many comments of my articles to see where we presently are with each trade and make sure to follow me to keep up to date with what I think as it changes with price action.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
