I would not consider myself a TA guy by any stretch. I’m a “macro guy” in the bigger picture who loves the fundamentals. There are some who live by TA as the only way. I do believe you can see many of these patterns short term emerging and playing out, but trying to use resistance from 2011 might be a stretch. Today, I’m of the belief that technicals CAN determine the short term with enough traders on the side of the trade, but algos may also then come in and punish you.
I was on a podcast with Kevin Wadsworth and Patrick Karim a few months ago and these guys are absolute class acts – and what I like about their methodology is that they realize TA is a probability, and not a certainty. With Kevin being a meteorologist, immediately I began thinking of TA as hurricane cones of certainty.
What this does is provide someone a potential path based on probability, and that’s I think the best TA can hope for. What IS problematic is that many users of TA, even the famous ones, can use these things with levels of certainty they have no business doing. Last year, one of the famous guys who I won’t name called for silver to be $38 by Christmas. This wasn’t based on fundamentals, but chart analysis 3 months out. Me, like many others, had relied on a lot of these guys to then predict the weather, so to speak, and may have lost money in trades based on that. I’M OK WITH THIS, but many are not and don’t realize these guys don’t have crystal balls.
What gets me going is the certainty that some speak with regarding this. THAT is dangerous. You can’t tell me silver won’t be $30 by Christmas. And, given the stock market possible blow up, you cannot tell me it won’t hit $14. In between you find a channel and probabilities. To take your magic 8 ball, shake it, and tell me “bad move” on my silver trade that netted me $3,000 profit in 3 weeks is not sound advice. You need to be able to present the reader with data, information through the lens of probability. Now, silver is not LIKELY to hit $50 by Christmas. However, if you look at the last time silver made a run to $50, it was sharp and quick within weeks, not a grind over years. So the TAs out there with certainty in their veins cannot really predict the catalyst that flips this on. So. Cone of certainty, my friend.
I have also called for much higher silver prices based on macro events errantly. My logic was sound, and the fundamentals were sound – but I also could not understand the level of short term manipulation that existed, especially with the blessing of the regulatory body who was overseeing this. This was not TA, it was market intervention. Check out my piece here where I look at exactly how it SHOULD have hit $50. In these highly manipulated markets – the question then is, why invest? I believe my answer to this is simply that gold was $35 in 1971 and it is 51x higher now – meaning I believe there is STRONG manipulation, but at times these mechanisms are overrun for incredible gains, and I think that time is coming. I’d like to be on the surfboard for that wave!
What I’m going to present to the reader here is some pattern analysis FIRST, then dive more into the TA stuff that has already happened in another post later. Just because it rained yesterday doesn’t mean it’s going to rain today. However, IF there is a hurricane cloud over you that has high probability of rain, you might want to buy an umbrella.
Check out how I pointed this setup out months ago at my main page, but here’s one sample for you.
Silver options futures
I’m going to have a chat Monday with a YouTube podcast guy about this, not sure what might come of it, but wanted to lay some ground work in case something comes of it down the road and a link to the notes is needed. I have been publishing these two charts now going back probably 7 or 8 months. I had recognized a pattern where just before silver options futures, about a week to 10 days before, you start seeing the assault on silver prices. We are 3 business days away from close here and this keeps rising, so I am thinking we might be “end of trend. First, the charts.
I call this the “silver beat down”. This told me I needed to stop buying any silver miners leading up to options smash time. This meant that people would buy call options on silver contracts, then the banks “sell” paper silver in massive quantities to drive down the price, forcing stops, and then buy it back during what I call a “recovery” period.
You can also see the 4 month down trend channel being broken, hard, with a move up the last week or so. This is pretty bullish. It’s not a peak above the line, it’s kicking in the door.
So take a look at the “recovery” period. I usually would make some buys right after options expirations. These were small bets on ST options usually (3 months) where I’d end up profiting maybe $500-$1000 a month. While I know this is peanuts to most of you out there, this was a proof of concept test.
Here’s the recovery charts. I called for about a $1.50 recovery, but it blew past my call by maybe $.70 now.
A few months ago I did have a conversation going with some people associated with Arcadia – had a few brief phone calls with Chris. Love that guy. I passed this info on to anyone who was reading. Recently, I sent to one of my newsletter guys and he said awhile back he heard of someone playing this pattern. So unclear if this is widely known or not. I’m not necessarily claiming to invent the light bulb here, but I’m writing about the light bulb for people to be aware.
I then wondered WHY the recovery this month was so strong. I looked at the bottom of the chart, and saw what many would consider a “reversal” pattern. Or, perhaps “end of trend” down. More on that in a second.
This chart here I’d consider a sideways channel since our move in July 2020. It moved so far and so fast, it needed to cool off. How does it do this? Price and time. Where you see the price correct down, hard, you then see it pop back up. You see the market struggling to find the “true value” of silver. When it pops over $28, you see the market rejection. Under $23, you see the sellers rejected. In the GREEN area, it appeared to me that there were different rules going on.
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One of the things I did early in my career for 3 years was metrics management for a very large IT contract. I have then done this a lot in my career in IT management over the last decade. So you establish apples and oranges, ensure processes are put in place, then bean count compliance to the process and those that failed the process. It sort of looks like this…
The concept is simple. You establish how something is to be done, monitor the process, and as long as things are humming along, no need to make changes. But when the wheels go off, you need to dig in and see what’s going on with the process. This is sort of what you are doing when in a channel. The question is – when does a channel break? One error I did was buying high on the breakout of the gold down channel – only for it be rejected. This turned into a descending broadening wedge. BUT – I believe that pattern then broke and it then turned into a sideways channel.
With this, you can see that wedge…..take note of that beautiful inverse head and shoulders.
When you see the bottom of this channel hit above, it rebounds up hard. Sort of like a reversal pattern. I then tried to separate these structures out. And you get something interesting.
So you see the down channel like a flag, it broke out (SPC), and started forming a new structure. This descending triangle also is a channel of sorts, if you think about it. You have the buyers at the bottom of the channel and the sellers at the top – but this channel has compression. Statistically, this breaks down lower like 70% of the time. You can say there was a breakout lower, but it was a “fakey breaky” as I’ve heard other say, and this may now be reversing up. So when this structure is defeated, it’s on to the next one.
So in my chart above with silver I added the UCL and LCL – I was seeing this as a “norm” of a channel. When something deviated too low, or too high, it was brought back into compliance. Now, there are rules with SPC, and I’m not going to go into them here, but the point is – if you deviate from this channel in certain ways, the process is broken. One can then apply this to channel dynamics with trading. The behavioral pattern is broken.
We saw this with the 4 month down channel. We saw this with the 8 year or so sideways channel in silver. When these patterns break, new ones emerge after a period of time. My point here is that if you look at silver as a sideways channel for 15 months – you should be looking at behaviors which break this trend. I don’t know if that UCL will be broken again soon, but if we head up towards $30, it would be the third time – and given Oliver’s momentum structures – it’s possible when this is broken, it’s game over.
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Remember the cone of certainty? Let’s look at another one with different confidence levels. This is sort of what people might consider the furthest the storm could go, based on the big picture numbers (like a macro).
This shows the further out, the less certain someone can be. Accuracy diminishes with time. However – in time, you have a wide berth demonstrated as to where it could go.
When I was looking at Oliver’s momentum structures, I also noticed how he was talking about a “shelf” or “base” or something like that. I saw it in my head, then went back and charted it. Sonofabitch…
So the trading range I’m showing you is that green rectangle where I wrote a few weeks ago, “Silver at bottom of sideways trading channel, will it hold? At the same time, silver is in a bigger arc. Many see the cup and handle of gold from 1980 to 2011, then now another cup and handle. But if you step back, silver is in a cup and handle from 1980. The cup was 1980 to 2011, and the handle is now turning up.
So this is my cruise liner, with the direction. Oliver talks about his momentum structures, and ultimately he may see a base at $30 forming soon. I can clearly see the handle about to launch.
“OK – dial it back Nate, what about these options”.
Sorry. What I wanted to show you was that the short term trade I’m showing you has existed in this green rectangle for 15 months and banks made….bank. Right now, we are sitting at $24.30, and in only 3 days, options expire.
This COULD be the first month in 15 months where no smash has been made. OR, perhaps it could be like 5 months ago….take a look at this.
If you look now, we may have seen that reversal pattern…
With the really high RSI right now on the daily, to me, this suggests we could have a pull back like we did in April. Nothing severe. But it doesn’t mean it won’t happen, to some degree.
Take a look at where we are with the call options. I compared Weds and Fri numbers. Seems a lot of people closed their options positions, perhaps anticipating a smash down.
To me, $23.50 is a juicy target to rinse 539 contracts. You then get the 950 at $24 and all in between. I have seen more calls come in for $24.50, with 52 more added. These people are either brave or stupid, I can’t tell yet.
Now, I was planning on buying after the “beat down” on Tuesday afternoon or Wednesday, but look at the RSI! Crazy high. It needs to cool off a bit. Let’s look at April again.
The RSI then went from 60 to 53 before the next period.
Let’s look at the weekly and go back to Oliver’s momentum structures and arcs.
On the bottom you see the RSI. In these arcs, you can see the downside of an arc has the lower RSI range – most weeks in the 30-50 range. On the upside of the arcs, you see most are in the upside of the RSI range from 50-70.
So IF we are breaking this 15 month beat down trend, and IF we are satisfying Oliver’s momentum structure number, and IF we are above Brady’s “good number”, and IF we do not have a beat down – I’m expecting the weekly RSI to stay in the 50-70 range. With that, it could mean we have months or years ahead with this high RSI. To me, that could mean we take out $30 in the next few months IF all of this is happening.
Point is, there could be a smash by Tuesday, so be careful, but if you are looking at the weekly RSIs and the macro setup here, it seems many might start piling in soon, even with a high daily RSI.
IF this indeed is happening, my purchases on Tue/Weds might be longer term option buys and not so much the buy and flip for 20-30% in a few days.
Good luck to all PM people out there, it’s been a brutal 15 months.