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Positioning for a Junior Miners ETF Rebound


Just a few weeks, gold miners and the corresponding exchange traded funds were the talk of the ETF realm, soaring to start the new year. By late January, five of the top 10 non-leveraged ETFs on a year-to-date basis were gold miners funds. That number has since been trimmed to one.

With the SPDR Gold Shares (GLD) , the world’s largest ETF backed by physical holdings of gold, down 6% over the past month, gold miners ETFs are experiencing even harsher repudiation. The Market Vectors Gold Miners ETF (GDX) is off nearly 6% while the Market Vectors Junior Gold Miners ETF (GDXJ) has shed more than 7% over the past 30 days. [February Blues for Gold ETFs]

GDXJ has been hindered by other factors beyond falling bullion prices. For example, it was reported earlier this month that George Soros’s Soros Fund Management LLC eliminated its stake in GDXJ, pared its position in GDX and sold all of its holdings in Barrick Gold (ABX), GDX’s second-largest holding. [Soros Trims Stakes in Miners ETFS]

However, aggressive, risk-tolerant traders can find opportunity in GDXJ, the second-largest gold miners ETF, as the fund’s chart shows GDXJ could be attempting to breakout from a bullish falling wedge pattern, according to Chris Kimble of Kimble Charting Solutions.

Of course, being bullish on GDXJ with the ETF down 7.4% this month and its reputation for volatility (GDXJ’s three-year standard deviation is almost 44%) is not for the faint of heart.

Traders need to consider other issues as well, including the silver/gold and GDXJ/GDX remaining in downtrends, as Kimble notes. A falling GDXJ/GDX ratio indicates that if investors are willing to nibble on gold miners, they are more apt to do so with the large-caps found in GDX, not the more volatile, smaller names residing in GDXJ.

Some traders are already betting on a junior miners rebound and doing so in aggressive fashion. Over the past 30 days, the Direxion Daily Junior Gold Miners Index Bull 3X Shares (JNUG) has seen creation activity while traders have redeemed shares of the Direxion Daily Junior Gold Miners Index Bear 3X Shares (JDST) , according to Direxion data.

However, on a month-to-date basis, only the Direxion Daily Gold Miners Bull 3X Shares (NUGT) has been a worse performer among Direxion’s triple-leveraged bullish ETFs than JNUG. NUGT and JNUG entered Wednesday with an average February loss of 23%.

Market Vectors Junior Gold Miners ETF


Chart Courtesy: Kimble Charting Solutions

Tom Lydon’s clients own shares ofGLD.