Gold Surges In Blue Skies, Mining Sector Prepares For Bull Cycle: This ETF Offers 2X Leverage During A Run Higher

Author: Melanie Schaffer | March 08, 2024 02:41pm

Direxion Daily Gold Miners Index Bull 2X Shares (NYSE:NUGT) has surged about 33% since Feb. 28, propelled by the price of spot gold, which has closed at a new all-time high each day this week.

On Friday, gold reached the $2,195 level on Monday, causing its relative strength index to continue climbing well into overbought territory. Once the commodity enters a consolidation phase, further bullish momentum is likely to trickle down into the gold mining sector, beginning with large-cap companies and eventually flowing through into juniors.

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For traders hoping to catch the potential confirmed bull cycle in the gold mining sector, NUGT looks to be headed over the 200-day simple moving average (SMA) and if the ETF regains that area as support and trades above the level for a period of time, the 50-day SMA will cross above the 200-day, causing a golden cross to form.

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 (NYSE:NEM), Barrick Gold Corp (NYSE:GOLD) and Franco-Nevada Corp (NYSE:FNV) making up 30.05% 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 (NYSE:DUST).

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The NUGT Chart: NUGT hit a low of $23.15 on Feb. 28, where the ETF reversed course and on March 1, NUGT popped up above the fund’s most recent lower high, which negated its downtrend. Since then, NUGT has made a consistent series of higher highs without retracing to form a higher low.

• For a higher low to form on the daily chart, which would confirm a new uptrend, NUGT will have to retrace or consolidate. The consolidation may take place over the next few trading days because a stock or ETF rarely breaks up through the 200-day SMA on the first attempt.
• NUGT was also looking to print a doji candlestick on Friday, which may indicate the local top has occurred. Traders can watch for a possible retracement to take place on Monday, which could provide a solid entry point for bullish traders who aren’t already in a position.
• Bearish traders may want to wait for signs that bullish momentum is decreasing and that a longer-term downturn is on the horizon.
• NUGT has resistance above at $33 and at $37.68 and support below at $28.13 and at $26.41.
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Image sourced from Shutterstock

Posted In: DUST FNV GOLD NEM NUGT