Magnificient Exponentials

This weekend I looked across my charting universe and could not find anything new that I had not pointed out in the past. We now seem to be resolving that inverse H&S pattern on the SPX – the little pre-launch pullback I was hoping for unfortunately did not materialize. If it is yet to happen it must happen now, starting tomorrow – otherwise it’s very much possible that we are hitting the acceleration phase of what Elliotticians would describe as a third wave. Do I want to be long here? Absolutely not – I feel very comfortable with my eclectic selection of symbols that I have submitted in the past two weeks.

There is one chart however that I want everyone to see – it’s a very important one in that it is a textbook example of a very clear charting pattern which nobody ‘in their right mind’ dares to touch. In hindsight these patterns are crystal clear and they only come around once, maybe twice a decade. I decided to post it in the clear as the boat is so one sided right now and even if every single person reading this blog (ca. $50k traders) would take this trade I don’t think it would make a dent into its final resolution.

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This is a weekly chart of the SLV – a very liquid silver based ETF. And it’s a prime example of an exponential curve – frankly, it does not get much more beautiful than this. When I drew this curve on top of the chart in Illustrator I realized how perfectly accurate it actually was mathematically – it’s a beauty. We even have a doji ending the current week and I am almost giddy with anticipation, patiently awaiting its resolution.

Let me be perfectly clear here. This is going to get very very ugly and probably sooner than later. I don’t care about Ben Bernanke, the FOMC, the incessant money printing, delivery shortages in the actual underlying. What I care about is simple mathematics and this chart is now moving straight up vertically. It is overbought on a daily, weekly, and monthly time frame. It will come down, just like a rock thrown straight up will eventually lose momentum and tumble back toward the earth.

I know what you are thinking.

Exponential curves are scary – yes, I know. And there is no reason why silver won’t touch the 50 mark before it reverses – maybe even 53. But who cares? For when it tumbles it will be a beauty to behold.

The right way to play this in a low VIX environment are far OTM options. Lottery tickets. So far out that you want to be able to sit through another ramp of $3 to $5 without even breaking a sweat. You also want sufficient time – but not too much. I’d give it three to six months and my target would be the 30 mark. Do the math – heck, why don’t you guys propose a few trades and post then in the comment section?

Don’t let an exponential curve scare you – you should respect it but see it as what it is. It must be appreciated as it represents human herd behavior at its finest. Yes, odds are you will not call the top – I have been lucky in the past but would not dare predict a number here. Play this like a good wine – give it time – pick the right vessel to enjoy it. When the time is right all preparation will be rewarded.

What you don’t want to do is to play this according to your usual rules or systems. They don’t apply here – we are several sigmas away from any predictability here. Think the little evil speculator avatar riding the black swan. This is a fun trade and that’s why you only sink a tiny bit of coin into it. Again – think lottery tickets – you buy them and then you forget them. Except that the odds are a million times higher here.

What if Silver beats mathematics and busts higher for another three months – never to reverse? Then you are out a few bucks you spent on your lottery ticket, yes – BFD.

In summary – if you have the choice between buying a lottery ticket or a put on SLV this week – you may consider that lottery tickets don’t come with odds like that 😉

UPDATE 11:49pm: TOS hikes silver margin to double that of exchange. Before you TOS traders complain – trust me – they are doing them a favor. Margins are your friend, especially when faced with a chart like this.

I do have a few symbols for the subs – a bit along the same lines maybe:
[amprotect=nonmember] Charts and commentary below for anyone donning a secret decoder ring. If you are interested in becoming a Gold member then don’t waste time and sign up here. And if you are a Zero subscriber it includes access to all Gold posts, so you actually get double the bang for your buck.
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Before I post them let me apologize for not putting up any long setups. Quite simply – according to my rules I don’t see much that I like these days. Tons of symbols that are making new highs and are way beyond redemption – in a common trading universe that is. So, the few symbols I like are front runners that have a good chance of reverting at the slightest sign of a reversal across the board. But these charts come with a warning – you may want to be delta hedged here as being one sided short in a resolving IHS is not something I would recommend. If hedging is too abstract to you then I propose that you keep tight stops and be disciplined about being stopped out – once set you don’t move them. Finally, play it small – do not put too much coin into these. Although the setups are good we are in a very bullish phase right now and if you take short trades you want to be like porcupines – very very careful.

EWG – yes, I’m going to stick it to the Krauts this weekend. Another high riser which I feel has come too high too fast. My preference would be to see it push toward 30 at which it would have satisfied the resolution of the little IHS pattern.

Another weekly chart – GSK. I rarely see a jump outside a weekly Bollinger like that, earnings notwithstanding. Again, no guarantees here but I propose that a little correction is not too far away.

Another weekly chart and with some luck Intel will do a repeat of last spring’s earning season. I like how we immediately pushed trough two Bollinger resistance lines – the 25-w and 100-w.  I also like how the 100-w is slightly dropping right now – which raises the odds a little bit. Again, be careful and be aware that we could see another push higher before she decides to shake out some piggies.

That’s all I have for the weekend – but I’m going to keep digging for symbols tomorrow and put them up in a new thread once I have rounded up a few more victims (long or short).

Cheers,

Mole