Since breaking through an important support level at $150, SPDR Gold Trust ($GLD) has been in distribution mode. Over the past five months, $GLD has formed a bearish base just below the declining 10-month MA, which is like the 200-day moving average on the daily chart.

The current base should eventually break down to new 52-week lows, and potentially find support somewhere around $100, which is the high of a significant base from 2008 and 2009:



Rather than selling short $GLD itself, we prefer to short gold by going long the Gold Double Short ETN ($DZZ).

$DZZ sold off to and undercut the 20-day EMA early in the morning, but immediately reversed and rallied back above the mid-point of the day's range by the close. The reversal was bullish, but the price action still must climb above yesterday's high to follow through:



Going into today, we are placing $DZZ on our watchlist for potential swing trade entry. Subscribing members of our swing trade newsletter should note our exact entry, stop, and target prices for this setup in today's full report.

Our position in the ProShares UltraShort Lehman 20+ Yr ($TBT), an inversely correlated "short ETF" continues to act well. $TBT has tightened up over the past few weeks, while holding the 10-week moving average. The 10-week moving average has begun to trend higher as well, which is also a good sign.

$TBT if forming its first significant base after a strong trend reversal, so this consolidation should eventually produce a powerful breakout:



Yesterday's bearish churning action in the broad market could point to a slight pullback over the next few days. Given last week's heavy selling and Monday's stalling, it is probably best to lay low through the end of the year. For those establishing new long positions (with a correlation to the stock market), consider doing so with reduced size to prevent overtrading.

Deron Wagner is the Founder and Head Trader of both Morpheus Capital LP, a U.S. hedge fund, and MorpheusTrading.com, a trader education firm.