For traders loving leverage with gold miners exchange-traded funds, the Direxion Daily Gold Miners Index Bull 3X Shares (NYSE: NUGT) has been the place to be.
NUGT, currently one of the most popular leveraged ETFs, is up 53% in June, indicating up has been the path of least of resistance with the fund that attempts to deliver triple the daily returns of the NYSE Arca Gold Miners Index.
As was noted last week, traders have been embracing NUGT's bearish cousin, the Direxion Daily Gold Miners Index Bear 3X Shares (NYSE: DUST), in a big way, a theme that has continued over the past several days. There might be some merit to DUST, if the time is right, but waiting for that time could prove painful in the coming days.
“First, consider that last week's gain for the ETF, totaling 5.8%, was its third consecutive weekly advance — marking NUGT's longest weekly win streak since around the time of the stock market's late-December lows,” according to Schaeffer's Investment Research. “As a result, the bullishly leveraged ETF notched a Friday close above its descending 80-week moving average for the first time since the week prior to the November 2016 U.S. presidential election.”
Why It's Important
Data confirm traders remain fond of the bearish DUST. For the five days ending Monday, June 17, traders plunked down $36.54 million into DUST, a figure that swells to $91.69 million for the 10-day span ending June 17, according to Direxion data.
The long DUST thesis could be imminently tested. If the Federal Reserve signals a dovish tone following its two-day meeting today, potentially setting the stage for interest rate cuts this year, the dollar is likely to decline and gold will move higher. NUGT and traditional gold miners ETFs often overshoot spot gold's price action in both directions.
Bottom line: the Fed could pinch DUST bulls, and do so as soon today.
Assuming the Fed delivers for gold bugs, technical issues could stymie NUGT.
“What's more, NUGT intensified an ongoing assault on its 320-day moving average,” according to Schaeffer's. “The fund closed four straight days above this level for the third time in 2018, and has closed eight of the last nine trading days above this trendline. Again, the leveraged gold mining tracker hasn't enjoyed a streak like that above its 320-day since the fourth quarter of 2016.”
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