The Tape Says Take Profits And Run When Mining ETF Bounces

Some stocks, Apple (NASDAQ:AAPL) being a prime example, develop cult followings. Sometimes that is a good thing, but often times it is not. After all, members of a cult have, to put things delicately, given away their freedom of thought.

Some ETFs accrue cult followings over time, too. Gold mining ETFs, such as the group's largest fund, the Market Vectors Gold Miners ETF (NYSE:GDX), have some impassioned shareholders. Confirming that is as simple as heading over to Twitter where, last week, a certain ETF analyst was on the receiving end of some choice words from gold mining bulls after those stocks spiked when Federal Reserve Chairman Ben Bernanke implied quantitative easing tapering may not be as imminent as some previously thought.

In this space, we've been bearish on gold mining ETFs for some time. One can "timestamp" that bearishness back to at least May 2012, when we wondered what happens to ETFs that slump back to their debut prices. Funds highlighted in that story include GDX and the Market Vectors Junior Gold Miners ETF (NYSE:GDXJ), a fund that was recently reverse split.

Since then, we have wondered aloud if things can actually get worse for mining ETFs. Then we proved that even really, really smart guys like David Einhorn, John Paulson and George Soros have struggled with mining stocks and ETFs.

Overall, we have offered up plenty of analysis and coverage of what has generally been an awful time to hold mining ETFs for any more than a few days here and there.

In the U.S., everyone is entitled to free speech, including giving other folks a hard time on Twitter. No problem at all, but here is a fact: GDX is down almost 43 percent since our piece questioning the validity of being long GDX and GDXJ was published on May 11, 2012.

More importantly, this piece is not about being right. It is about what happens after GDX notches a good day or a few good days. Since those instants have been rare over the past year, the sample set is easy to establish.

From September 12-14, 2012, GDX gained 7.6 percent. By October 15, the fund had lost 4.1 percent. Not too bad for an ETF this volatile, but there are other examples of GDX not being able to hold a few days of gains.

From November 5-8, 2012, GDX gained about $2 to close at $51.41 on November 8. On November 15, the ETF closed below $46. From February 20-27, 2013 GDX traded modestly higher from $37.45 to $39.05. By April 17, the ETF had plunged to just over $27.

May 17 through June 3 was a nice time to own GDX as the ETF went from $26.38 to $30.36. Holding the fund through June 22 was not wise as it dropped nearly 27 percent. However, by June 28, GDX was back to almost $24.50. By July 8, the ETF closed at $22.90.

Bottom line: There very well could come time that gold miners rally and rally big-time. However, the tape proves that being long GDX and rival funds over the past 12-16 months has been difficult to say the least. Indeed, these ETFs have made for some good TRADES, but terrible long-term holds. Translation: If you catch five, six or seven percent in GDX or a comparable ETF in just a few days, do not wait and take something off the table.

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