Why I am Short $NUGT the 3X Gold Miners ETF

If you have followed along with previous posts (or looked at the title of this blog) you know that I am shorting leveraged ETFs.  The primary reason is that by leveraging and daily rebalancing, these ETFs are set up to fail over the long term.  One of the positions I took a week ago was a short position in $NUGT, the Direxion Daily Gold Minors Index Bull ETF. 

Like the other ETFs I have shorted ($TZA, $FAZ and $RUSS) this is a daily rebalanced fund that is designed to move three times (300%) of another underlying fund or index,  In this case, the $GDX.  Unlike the others, this time I have shorted the Bull ETF, not the Bear ETF, which is $DUST.  The quick reason is that I couldn’t borrow any $DUST to short, and haven’t been able to for a long time.  Maybe you can, or maybe I could if I was willing to pay a fee, which I am not.  

The longer reason is that the miners are different from a lot of stocks.  Most of the stocks and indices are fairly well correlated to each other.  For instance, if the Dow goes up, the S&P does, as does the NASDAQ, and vice versa.  The miners are more closely correlated to the price of gold, however.  I am sure someone can produce studies to prove and disprove this, but, it’s pretty obvious if follow it.  Not perfectly correlated, but pretty much. 

So, if you believe gold prices are in decline, it makes more sense to short the bull here, rather than the bear.  But, as with any of these leveraged ETFs, in the long run, both are likely to decay compared to the underlying index.  To wit, so far this year:

$GDX is up 9.41%

$NUGT is up 9.35%

$DUST is down 41.85%

Any questions?  By the way, the Junior Miners are even more volatile.  More on them later if I open a position there.  

One other point I will hit in greater detail in another post:  Entrances matter.

No advice here, just providing information, do you own due diligence, yada yada yada,

Here’s how my positions are doing end of day (and yes, I had a good day):

	Close	Initial Short	Gain (Losss)
NUGT	10.70	10.47	(0.23)
BIS	29.72	29.75	0.03
TZA	9.59	9.90	0.31
VIXM	54.62	54.60	(0.02)
RUSS	32.59	30.40	(2.19)
CORN	23.10	22.68	(0.42)
FAZ	11.26	11.45	0.19
UVXY	39.54	40.68	1.14
FXP	27.20	27.58	0.38