When to take profits from the short trade in FCX? Why use JNUG while shorting? Today, I’ll reply to these and other questions.
So, yes, today’s article will be a bit different than others. Instead of the coverage of the most recent events in the precious metals market, I’ll provide you with three blocks of today’s comprehensive Gold Trading Alert:
- Full update on the FCX trade along with a near-term profit-take level (you’re welcome)
- Explanation of the logic behind shorting JNUG instead of owning JDST (if that’s available on one’s trading account)
- The Q&A section where I replied to subscribers' recent questions.
Enjoy:
FCX’s Profitable Slide
FCX declined as well, and while we might still see the corrective, post-breakdown upswing, it’s certainly not necessary that we get one. FCX could continue to slide without it.
Also, since I’ve been featuring the profit-take level for the FCX ($27.13) for a long time, I decided to revisit it, and given the new information that we have, I decided to update the trading plan for the FCX. Namely, the current plan is to take profits from FCX when it reaches ~$36 and then re-enter the short position after a likely rebound.
There are several reasons for this, and let’s start with the big picture to show you just how serious the situation is and how severe the upcoming slide is likely to be.
The move below $42 was not just a move below the neck level of the head-and-shoulders pattern. It was also a breakdown below the rising (red) support line and the 2007 high. In particular, the latter is important, as FCX never managed to hold ground after breaking above this high. Another slide below it tells us that the technical picture for FCX is really weak.
Please note that FCX moves in tune with world stocks (lower part of the chart). No wonder – the world uses copper, so the demand for it is connected with the level of economic activity, which itself is directly linked to companies’ profits and thus share prices.
World stocks just invalidated their move above their 2007 and 2021 highs, which is a bearish technical sign for many markets – and FCX.
Now, the above chart also provides us with a few targets based on the Fibonacci retracement levels applied to the 2020 – 2024 rally. In this way, we got ~$36, ~$30, and ~$24 as the downside targets. They are (all) also strengthened by the previous lows.
Which one will be reached? Most likely, all of them. And then I expect FCX to move even lower. But, since no market moves in a straight line without periodic corrections, there will be some along the way. And it seems that we might get one shortly.
On a side note, 2024 is a down year for FCX and it is a down year for NEM. Yes, the prices of both are below their Dec. 31, 2022, closing prices.
Zooming in, we see that the ~$36 level is also strengthened (as support) by the 61.8% Fibonacci retracement based on the 2022 – 2024 rally. Plus, that’s where we have the 2024 low (as well as the late-2022 low, but this one is not that important).
Also, the RSI is already below 30, indicating that perhaps it’s time for a rebound.
Consequently, we have several reasons to think that a rebound is going to take place soon and that it’s going to take place from about $36 (precisely, I’m placing the profit-take at $36.23).
This could correspond to the target level being reached in the GDXJ, but it doesn’t have to be the case.
How high would FCX go during the rebound? Perhaps as low as ~$39 (previous lows) and perhaps as high as the neck level of the head-and-shoulders pattern – at about $41.5. Either way, once this correction is over, I think that the next slide is going to be huge.
JNUG or JDST – That Is the Question
Moving back to mining stocks, you likely noticed that I favor shorting JNUG over shorting GDXJ or simply buying JDST, and since so many people joined recently, I thought it would be a good idea to show you why this is the case.
And yes, I realize that not everyone has the ability to short JNUG or short in general in their brokerage account. If you’re not sure how to short something in your brokerage account, please ask your broker for details – they should be able to explain the technicalities better than I can (as I can’t possibly provide details for all the brokers and trading platforms out there).
The reason is time/volatility decay that’s inherent to the way the leveraged ETFs work.
They multiple DAILY price moves, which (mathematically) means that over time, the value will erode.
Moving 1% down and then 1% up gives you almost the same amount. It’s 0.99 x 1.01 = 0.9999
When you increase the size of the movement, the effect becomes much bigger. Here’s a move up and then down by 30%. 1.3 x 0.7 = 0.91
While 0.01% (1 – 0.9999) is negligible in practice, 9% (1 - 0.91) is not.
Leveraged ETFs are, well, leveraged, which means that the moves back and forth have to be bigger (that’s kind of the point), and the above effect will come into play with full force. That’s why, on chart above, the GDXJ is trading more or less close to its March 2022 highs, but both leveraged instruments: JDST and JNUG are much lower.
The good news is that you can take advantage of it by shorting the leveraged ETF. This way, this mechanism works in your favor. When aiming to profit from declining prices, one shorts JNUG. When aiming to profit from rising prices, one shorts JDST (or simply owns GDXJ to at least not be hurt by this mechanism).
Now, being long JDST is ok as long as the trade is not being held for long, as the longer the trade is held, the longer the above-described effect works against you.
We’re likely to take profits from this trade soon, so using JDST should be fine (of course, no guarantees), but I wanted to explain the logic behind this entire mechanism.
Every expert has their own tactics and ‘tricks’ and some aces up their sleeves, and the above is one of mine. Anna is often focusing on the Elliott Wave Theory implications and price gaps, Rick has his own unique Hidden Pivot method (really interesting and profitable stuff – I’ve seen it work), and other experts have their own favorite techniques as well.
Subscribers’ Letters to the Editor
Q: Thank you for all your work and effort. I embrace the concept of shorting the leveraged JNUG, and appreciate your defining profit levels. Would you be able to do the same for AGQ, the leveraged silver miners ETF. That would avoid the unavoidable decay for ZSL. Thank you.
A: You’re very much welcome. Thank you for being my subscriber.
Sure, just added it to the list.
Q1: I bought the HGD and JDST ETFs many months ago (…) I noticed today the price target for both is now just above $35 after being revised down from around 43 dollars. Is 35 dollars price for the current move up in this part of the cycle or the highest projected price as the final top?
Q2: I don't know how to short stocks. Is there an ETF I can buy to benefit from the coming move down in the gold miners?
A: Those are interim targets. I don’t think that the decline in the junior mining stocks is ending here (the same with [the new asset with great potential that I’m leaving to my subscribers] and FCX). I think it’s just starting. I think that 2025 will bring prices below the 2024 lows.
I’d suggest asking your broker how to short stocks – they might even have a how-to published somewhere on their website. Or perhaps reach out to their support. And yes, there are a few inverse ETFs that one could buy to benefit from declining prices of junior mining stocks, such as the JDST. If you mean how to profit from declining prices of [the new asset with great potential that I’m leaving to my subscribers] and/or FCX without shorting it, then the only idea that comes to my mind is to buy put options for them. Please note that this is particularly risky, so using only small capital for this is usually a good idea, and also adding at least one month of expiration time to the longest that you think that the trade will take – just in case.
Of course, that’s just my general opinion, not individual investment advice.
Q: PR
I would like you to comment on Silvers out performance to Gold as confirmation to Gold and PMs direction. You have been using this specifically for Silvers strong rallies to the upside against Golds price under performance as establishing a top or an end to the rallies in the precious metals specifically Gold. I would like clarification on the reverse to the down side for Silvers out performance to Gold in predicting Golds and Silvers bottoms and target prices specifically in Silver. Silver is out performing Gold to the downside, ( silver has been more volatile intraday than Gold). Can Gold be used as an indicator for the downside of Silver? How can we be more effective in positioning in Silver to the downside. Silver clearly is going to outperform to the downside compared to Gold in a market correction, this is my understanding.
A: In short, I have no good answer for now. Yes, silver is likely to decline more than gold, but I wouldn’t be so sure about the predictive power of the near-term underperformance before the bottom (which could be understood as outperformance in terms of the pace of decline). The outperformance before the tops works, as the investment public tends to buy close to the tops and investment public is more interested in a smaller market (many big players can’t get into silver – they stick to gold) and in a market that has a manipulation theory surrounding it (I’ve been reading about silver price being suppressed and about to soar above $100 based on that for over 20 years – I’m not even exaggerating).
Does the investment public drop the towel close to the bottom MORE SO than bigger investors? That’s not necessarily the case. Institutions are usually patient… Until someone from the big guys presses the ‘panic’ button. As they (funds, for example) are compared to each other, nobody wants to be left holding the bag on their own, so others might follow soon, and we can get very volatile slides. Think 2008. It doesn’t work this way on the way up.
Consequently, I wouldn’t necessarily say that silver’s short-term volatility works in a symmetrical way. I’ve researched this many years ago, and I haven’t found this to be the case to a reliable extent. I’ll dig into that once again in the future, but for now, I’ll keep watching for silver’s outperformance as a bearish sign, but as far bullish signs are concerned, I’ll be focusing more on the strength in mining stocks.
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Thank you for reading today’s analysis. If you liked it, and would like to stay notified about new ones being posted completely free, I encourage you to sign up to my free gold newsletter today.
Thank you.
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief
P.S. The precise profit-take level for the trade in the GDXJ, as well as the details of the new trade (with even greater potential in the near term) are things that I’ll reserve for my subscribers and I encourage you to join them today.