Don’t let the sleazy head-fake that occurred on yesterday’s opening bar spook you, since the stock had already managed to take out a key price peak before DaBoyz pulled the plug. As a practical matter, long positions held since mid-June, when I identified a 47.38 target with GDXJ trading near 38.68, should have been exited on a stop-loss at 46.20 on the selloff. That would have simply been managing the risk of the trade using the 1-to-3 risk:reward ratio that I always advise. Since the stock topped at 46.50, about 90 cents shy of the target, we should have been willing to risk a move of no more than 30 cents against us at that point to capture the remaining (and implied) 90 cents of the rally to the target. I call this a ‘dynamic’ trailing stop because it is adjusted by shrinking the stop-loss as the underlying stock closes on the target.
Because the rally leg was bullishly impulsive, having exceeded an important high at 46.00 made in mid-March, we should expect GDXJ to achieve a new recovery high of at least 49.61 after this correction has ended. The correction looks like it has further to go, however, since a minor Hidden Pivot support at 43.64 was exceeded by eight cents at yesterday’s low. Meanwhile, the 41.02 midpoint pivot of the large pattern shown is a logical place to do some bottom-fishing for the anticipated ride to 49.61, although we should be prepared for a bullish reversal from somewhere above it. Please note that it would take an uncorrected thrust exceeding the 2013 peak at 54.56 to decisively break the back of the bear market begun in 2010 from $179. _______ UPDATE (July 15, 4:53 p.m. EDT): The correction has been nasty and now looks like it will come down at least to the 41.02 midpoint pivot noted above. Rather than bottom-fish there, which is risky, I’ll suggest doing any buying at or very near the 40.35 minor target shown in the new chart (inset). Officially, we’ll bid 40.40 for 400 shares, stop 40.28. Alternatively, if you prefer using options, you could try buying eight 46-strike calls expiring August 29 for 0.80, with a stop-loss at 0.60. This may require some fine-tuning in real time, so stay close to the chat room if the order looks like it could fill. This does NOT imply that you should buy the calls when they are offered at 0.80, since they’ll be perhaps 0.55 or 0.60 bid at that point. The objective, as always, will be to buy the calls for a price that is midway between the bid and offer. Take care that you are not doing so using a fat bid placed by another Rick’s Picks subscriber as a benchmark. _____ UPDATE (July 16, 4:06 p.m. EDT): Today’s whipsaw has slightly altered my guidance. The relevant pattern, on the 30-minute, is now a=44.09 (7/15 at 10:30 a.m.); b=41.44 (both same as before); and c=42.70. This implies that you could have bottom-fished with a very tight stop at p=41.36, and even taken a partial profit on the 49-cent rally that followed. But you’ll have another chance to do so at 40.05, the d target of the pattern. This could be complicated by the important low at 29.93 made on 6/30, since the usual gang of numbskulls will be looking for support there.