More Upside for Direxion Shares Exchange Traded Fund Trust
This is my seventh consecutive monthly update on the “longshot pick” Direxion Daily Jr Gold Miners Bull 3X ETF (NYSEARCA: JNUG)—also known as Direxion Shares Exchange Traded Fund Trust—which was originally offered to Profit Confidential readers in the third week of January 2016.
Looking carefully at the chart below, current to the market close on Friday August 19, the following observation comes quickly to mind: there has been minimal month-to-month price change, mainly due to angry and frenetic skirmishes in the “Gold Wars.”
Technical Review of JNUG Stock
If continuously held since the pick was made in January 2016, the maximum theoretical upside/profit is 1,066% so far.
The chart clearly shows something that most “mining skeptics” ignore: that the spectacular rise in 2016 mainly reversed the ludicrous over-selling of the sector that occurred during 2011-2015 (the worst of which was in 2015!) when the precious metals (PM) complex (for reasons that will forever remain controversial) was taken into the barn and beaten with a stick.
Current chart values are not overbought; on the contrary, they are merely reverting to the mean. There is a massive amount of blue-sky chart space left on the upside!
Chart courtesy of TC2000.com
Charts aside, the question often comes up of whether the miners as a group are fairly valued fundamentally, given the strong rise this year.
Former accountant (and now investment manager) Adam Hamilton recently penned, “At Q2’16’s average $1,259 gold price, $886 AISCs yield strong per-ounce profits of $373. That’s not only up 6.0% from Q1’16’s $352 operating profits despite higher costs, but 38.7% better than Q4’15’s $269 margins. Yet between Q4’15 and Q2’16, the average gold price only climbed 14.0%. Higher gold prices translate into much-higher profits for gold mining, making gold stocks exceedingly attractive during gold bulls.”
Hamilton continued, “Investors who understand gold miners’ amazing profits leverage to gold prices are the ones who’ve been aggressively buying this year and are already enjoying monster gains. By the time operations are reflected in P/Es, gold stocks will be much higher.” (Source: “Gold Miners’ Q2’16 Fundamentals,” Safehaven, August 19, 2016.)
The “Gold Wars”
The current skirmish in the “Gold Wars” (discussed in earlier reports) is both brutal and unprecedented. It is almost as if both sides have drawn an invisible line in the sand. The Direxion Shares Exchange Traded Fund Trust, for example, ended trading on Friday August 19 off some 14% from its recent or local high ($332.88), entirely because of the recent smashes and beatdowns in the PM complex that mysteriously appeared every single time gold tried to break $1,350.00 (and silver, $20.00).
I don’t expect the Gold Wars to end in my lifetime—anymore than I think Santa is real—but I do expect that the current and historic battle (at the $1,350.00 level in gold and $20.00 level in silver) to resolve, before we can see new upside. Nor will I pretend that this is a legitimate battle between actual bulls and bears. This is a battle between legitimate buyers and the criminal (yet protected-by-government) central banks and “bullion banks” and their nefarious agents.
Friday, August 12, 2016 rang in the most brutal single-pronged gold smash I have ever seen. Almost exactly at noon, “someone” dumped $5.0 billion of paper or “notional” gold onto the bid stack, watched gold swoon over $20.00, and then covered for a short-term profit that staggers the imagination.
The all-time record for a multi-pronged gold smash remains the blatant nonsense from Friday, April 12, 2013; now a matter mainly of historical interest. Of course, in the real world, traders don’t place big bets on Fridays at all, because of the possibility of becoming “trapped” over the weekend. Manipulators, on the other hand, absolutely and passionately love Fridays for the same reason that some spouses prefer to have the “last word” in an argument! For the ensuing 48 hours, their brute-force trade is impervious to any further market action or reaction.
At the time of the August 12, 2016 smash, gold was in the process of taking out the key $1,350.00 level, and was clearly headed higher. The general consensus among gold-watchers is that the culprit had to have been the Swiss-based Bank for International Settlements (BIS), the so-called “Central Bank of Central Banks,” if only because of the size and speed of the transaction. If you have doubts, try the same trade with your own broker. Start small, maybe with a 100% naked gold short of an easy $1.0 billion, just to get your feet wet—and then drop me a note from prison letting me know how that worked out for you!
A recent analysis of the parasitic and destructive role played by the BIS in ongoing gold price suppression confirms that the above-noted, deliberate, 2013 gold take-down not only brought the entire sector to its knees but, even at today’s improved prices, that the damage has yet to be fully reversed. (Source: “BIS-network Dupes Gold Mining Industry,” Zero Hedge, August 22, 2016.)
This constant battle has been a mixed blessing for the chartists and technical analysis (TA) bunch. As explained in prior essays, these guys make their living on their data, so it does not behoove them to suddenly blurt out—as I have said here many, many, times in these essays—that technical analysis is of dubious value when dealing with a manipulated market. That would be like Google saying that its search results don’t always match exactly what you were looking for!
Currently, the chart-people are suffering from a “bounty of riches.” Because of the way that the manipulators have defended (via brute-force, paper smashes) the $1,350.00 and $20.00 levels (for gold and silver, respectively), the charts now show, potentially, a triple or even a quadruple top in gold! So they tell everyone to sell, and then cross their fingers, hoping that there are no alert fifth-graders among their subscribers to spot the flawed logic-loop.
With such a heated battle taking place in the gold pits, it should be no surprise that measures are being taken across all markets that are more blatant and desperate than usual. Credit Zero Hedge for being the first to notice that, on the monthly publication of the government nonfarm payroll (NFP) data, it effectively makes no difference whether the number is a “hit” (better than expected) or a “miss” (worse than expected.) Throughout 2016, regardless of the number actually printed, mysterious algorithms rushed in to consistently raise the buck and smash gold after the release of the NFP data. (Source: “WTF Chart Of The Day: BTFP, Stupid!,” Zero Hedge, August 5, 2016.)
Writer Andrew Hoffman, who claims to have spent more time watching the gold pits than anyone else, has recently coined the phrase “decline du jour.” This is a reference to the identifiable data that the mainstream media (MSM) chooses to randomly “blame” whenever a gold smash takes place.
For example, if gold falls when the only other weak market around at that specific time is the yen, then the yen becomes the “decline du jour” to justify the smash to a gullible public. This is what lawyers call “ex post facto” reasoning, and usually gets a snicker even from other lawyers. (Source: “Waiting Through Prototypical Cartel Shenanigans, For The Next, Inevitable Precious Metals Upleg,” 24hGOLD, July 25, 2016.)
Shenanigans in the Gold Market
Speaking of shenanigans, more and more members of the gold community are noticing that the “musical chairs” custodianship of the highly-popular SPDR Gold Trust (ETF) (NYSEARCA: GLD) adds to the ongoing suspicion that something “unusual” is taking place behind the scenes.
The thinking is that, if the official (or latest) custodian is related to, or has a history with, the very same private bullion banks who have been responsible for some 95% of the gold-smashing incidents over the last few years, then the issue arises: is it possible that gold bullion held in good faith for the GLD longs is being simultaneously used (or loaned) to these miscreant sellers to assist in the gold smashes (what Wiktionary calls “playing both ends against the middle”)?
There is no hard proof, of course, other than the fact that ownership in GLD does not give you rights to physical metal (unlike the Sprott Physical Bullian Trusts-branded trusts, for example); and the custodial title at GLD is, seemingly, always changing hands. (Source: “GLD Sponsor dodges disclosure details of Bank of England as gold sub-custodian in latest SEC filing,” Zero Hedge, August 3, 2016.)
For readers who have asked how to participate in the silver space too, I can simply clarify that Direxion Shares Exchange Traded Fund Trust does indeed include silver projects. Since Direxion Shares Exchange Traded Fund Trust, as explained in my earlier articles, is a derivative on an actively managed index of junior miners, the companies underlying the play are always changing, and the manager of the underlying fund/index tends to include silver plays with the same gusto that he includes gold plays, although perhaps in a smaller overall ratio. (Not by choice, but because silver plays are organically a much smaller overall portion of the world mining space.)
Also noteworthy, last month in my July update, I suggested we should “…watch for an announcement from the Direxion Shares Exchange Traded Fund Trust management that they are splitting the shares” and I indicated my belief that the Direxion Shares Exchange Traded Fund Trust manager had a knack for spotting trends, and forward-splitting (or reverse-splitting) his fund to accurately match the primary trend.
In fact, just a few days after that prescient comment, Direxion Shares Exchange Traded Fund Trust announced a 10-to-1 forward split of shares, to be effective August 25, 2016. This will make units of Direxion Shares Exchange Traded Fund Trust much more attractive to small speculators and add considerable liquidity. I consider this quite a bullish sign for the longer-term.
The Bottom Line on JNUG Stock
Finally, in concluding this update, it seems fitting to ask readers to take a 60-second “moment of silence” in memory of the late, great, free market system that our collective western nations used to be so proud of. It is no more…
For over a century, there were only two factors worth considering when writing an investment analysis: fundamental factors and technical factors. That was it. Done. Over. End of story.
Now, clearly, there is a third factor and no one in the MSM wants to talk about it. “Enemies of the investment” must also be examined. Who is trying to kill it, what resources do they have, and how successful are they likely to be over the long haul?
This brings to mind that classic line of dialogue in the movie Godfather III (1990): “This Pope has powerful enemies.” (Source: “This Pope Has Powerful Enemies, We May Not Be In Time,” MovieSounds.Org, last accessed: August 21, 2016.)
Well, shameful as the fact may be to a society that not only tolerates, but actively encourages, beatdowns in the PM complex, this investment clearly has powerful enemies too. And, in the opinion of the writer, this investment will not advance to its true potential until they collectively take a chill-pill and back off.