A Short-Term Bull Move Begins Now

Roughly two months ago one of my favorite short-term indicators signaled an opportunity that reaped over 16%…in fewer than two weeks.
And now we have the same short-term opportunity knocking on the door.
As most of us know the Gold Miners (GDX) are down almost 50% this year. So, I think it’s safe to say that the sector is one of the most, if not the most, hated in the market.
But that should never stop us from taking advantage of opportunities with the aggressive portion of our portfolio, particularly when opportunities like the one I’m about to mention arise.
The ETF that tracks gold mining stocks has pushed below 2008 levels. Sure, if you’re a long-term investor with contrarian tendencies, there is no doubt that now is a great entry point. But some of us like to mix-up our long-term investments with a few nimble plays, particularly when we are greeted with great set-ups.
Take a look at the RSI readings below the GDX chart.
The RSI is an overbought/oversold oscillator that compares the performance of an equity – in our case a highly liquid ETF – to itself over a period of time. It should not be confused with the term “relative strength,” which is the comparison of one entity’s performance to another.
The blue lines in the chart above indicate each time GDX hit an extreme oversold reading.
After each oversold reading, GDX rallied almost immediately. Some of the rallies – including the latest in September – lasted only a few days. But the gains were there if you were quick enough to take them.
Other rallies lasted two to four weeks and offered opportunities for exceptional profits.
RSI is an important tool that allows you to gauge the probability of a short- to intermediate-term reversal. It does not tell you the exact entry or exit point, but it helps you be aware that a reversal is on the horizon.
Since I’m a contrarian at heart, I prefer to buy an index when a highly liquid stock or ETF reaches an extreme oversold state.
So let’s explore ways to take advantage of the oversold reading in GDX. Obviously, you could buy the ETF outright. A round lot (100 shares) would cost you roughly $2,100.
Or you could sell puts. Selling puts requires far less capital…roughly 80% less. Not only that but, you are able to select the price in which you want to buy the stock or in this case the ETF outright. It’s my preferred way to take advantage of extreme oversold readings.
And I’ve been using the same strategy since late May in GDX for my High Yield Trader service. So far, so good…we’ve seen gains of over 30% while the ETF has struggled mightily.
But regardless of the strategy, what’s truly important here is the opportunity.
Don’t miss out!

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