In the world of pattern recognition, third legs are the strongest, most powerful segment of impulse moves. When one makes it self known by pattern or passion, it is begging to be traded. Not every third wave makes itself known with the exact clarity that option trading prefers, but, in the case of Gold (GLD), last week was pretty damn clear and close enough to take on a new trade. GLD Long Term - Weekly Prices Bigger picture: Multi-year Wave 3 of (3) GLD Daily Trading Model One more gap-up away: Wave 3 of (3) On Friday GLD was up 3.21%. The 100 days to expiration out-of-the-money call options were up anywhere from 100-200% in out of the money strikes, as shown on the table below. If you can get a triple digit return on three-month to expiration options on just a 3% move in the underlying, something more than a run of the mill up-leg is happening. Watch GLD next week, any close above $180 is a BUY (if not long already). Jan 19 2024 OTM Calls We are well situated for a third wave down in the stock indices (see updated charts below) and with the next leg up GLD, i.e., a close above $180, we will be buying calls for this table, starting with the Jan 19th $180C (6.00-6.10). Another strong up day, anything above 1%, and any call on this table looks attractive for a 3 month buy and hold trade. If the pattern recognition analysis is wrong and GLD is not starting a third wave impulse UP, accept the possibility of being stopped out at a 50% loss. The risk:reward analysis is to risk 50% in order to make 500%, minimum and it looks like a lock to me. Big Picture EW Charts - New Internal Wave Labels With some extra time this weekend I've made a subtle yet meaningful adjustment to the internal EW labeling. Of note, multiple wave 3's across the major indices, with the potential for the next few weeks to be hard down, with the dynamic returns on index options. Below is the PRO and Premium positioning going into next week. If those first waves circle i are taken out across the board, look out below. PRO Positions Premium Positions EW & Trend Model Charts It's not that often that the Trend Model Trading Signals and EW Wave Counts line up so perfectly across all of the stock indices. The take-away is that there is a high probability trade to the downside over the next few days, weeks and maybe months. DJI SPY IWM QQQ
