Direxion Daily Gold Miners Index Bull 2X Shares NUGT was sliding over 2% Tuesday as the Federal Reserve began its monthly meeting, where the Bank of America expects the central bank to hold rates steady.
Analysts are mixed on what the Fed will decide by the end of 2023, however. While Bank of America leans toward a final rate hike in November, Goldman Sachs sees the Fed applying a pause in September and November, followed by several rate cuts in 2024.
With the U.S. teetering on a recession, which is often bullish for spot gold, the price of the commodity could increase over the next few months as investors examine the effects on the Fed’s hawkish policy.
For gold miners, seasonality could boost individual stocks and ETFs like NUGT, because miners will begin receiving assays from their summer drilling programs, which could raise the sector.
For NUGT, the ETF is trading in a possible bull flag pattern under the 50-day simple moving average (SMA) and a break up above that area from the pattern could indicate a longer-term bull cycle is on the horizon.
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NUGT is a double-leveraged fund that is designed to outperform the NYSE Arca Gold Miners Index by 200%. The ETF tracks several gold and silver mining companies, with Newmont Corp NEM, Barrick Gold Corp GOLD and Franco-Nevada Corp FNV making up 18.83% of its holdings.
It should be noted that leveraged ETFs are meant to be used as a trading vehicle by experienced traders, as opposed to a long-term investment. Leveraged ETFs should never be used by an investor with a buy-and-hold strategy or those who have low-risk appetites.
For traders wanting to play the gold mining index bearishly, Direxion offers Direxion Daily Gold Miners Index Bear 2X Shares DUST.
The NUGT Chart: NUGT’s drop on Tuesday was taking place on lower-than-average volume, which indicates consolidation and coincides with the theory that the ETF is forming the flag of a bull flag formation. The bull flag was formed between Sept. 7 and Tuesday, with the upward-sloping pole created during the first seven trading days of that timeframe and the flag forming since.
- The measured move of the flag is about 12%, which suggests the ETF could rise toward the $36 dollar mark if NUGT breaks up from the flag on higher-than-average volume. If that happens, the ETF will also regain support at the 50-day SMA, which would give bullish traders more confidence going forward.
- Bearish traders want to see the ETF continue to reject the 50-day SMA and then for big bearish volume to come in and drop NUGT down under the eight-day exponential moving average, which would negate the bull flag pattern.
- NUGT has resistance above at $33 and at $37.68 and support below at $28.13 and at $24.15.