Tales of a Technician: Bottom Fishing in the Gold Mine
June 29, 2021
I’m intrigued by gold miners this morning. I penned this morning’s Tackle Today message which focused on the support break in gold prices. Since it happened overnight, both GLD and GDX gapped lower this morning.
But, I must say I’m intrigued by the relative strength in GDX.
Rather than selling the down open, traders bought it. As I type, GDX is making a run for the high of the day and has shrunk its loss to a mere -0.35%. Meanwhile, /GC is off the lows and trying desperately to reverse its support break. I would have preferred a steeper drop in GDX, perhaps another day or two of follow-through to create a more compelling fade the fear setup.
But sometimes I don’t get what I want. As traders we have to play the hand we’re dealt. Here are the three essential questions:
- One, is GDX oversold enough to dip my toes in the water?
- Two, is today’s intraday bullish reversal enough evidence to justify pulling the trigger for a naked put?
- Three, can I go far enough OTM with Aug puts to provide sufficient margin for error?
How you answer each query will determine when/if you pull the trigger.
There’s a major support zone near $30.50 that’s easily seen on the weekly time frame. I suspect this is a level that long-term bulls will be eyeing with interest. If I’m able to sell puts where my breakeven is near or below this floor, then color me even more tempted.
There isn’t sufficient time left in the July monthly cycle, so August is the month for me with 52 days to expiration. The only two strikes that fit the bill for my criteria are the Aug $31 strike at a 22 delta trading for 50 cents, and the Aug $30 strike at a 14 delta trading for 30 cents.
The margin requirement is low enough to push the return on investment for both to 10% and beyond.
To further enhance the odds of success, I like the idea of scaling in at various levels to use any further decline to my advantage. I’ll be discussing this further in tomorrow’s inaugural session of my trading lab with TEAM PHOENIX.
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