Why I Love to See This Extreme Shape in My Charts

It's happening right now in gold, but it can show up most anywhere...

Aristotle is traditionally credited with the concepts behind the familiar idiom "nature abhors a vacuum."

It's just a way of saying, "when something is moved out of a space, something else will move in," or, "there is no truly empty space."

Some incredible minds have grappled with the ramifications of this concept over the 23 centuries since Aristotle.

To name a few: Galileo, Blaise Pascal, Thomas Hobbes, Robert Boyle, and even calculus co-inventors Sir Isaac Newton and Gottfried Leibniz have all weighed in.

Modern science has answered this question... with a few equivocations.

From a quantum perspective, there is no true empty space - it would still be filled with quantum fields. Nonetheless, there's a good deal of mostly empty space and plenty of partial vacuums.

Just like nature, the markets find a few things abhorrent - most of all the parabola.

A parabola is, at its essence, an exponential function. Galileo in his final, 1638 work, "Discourses on Two New Sciences," proved that the trajectory of a projectile traveling through a non-resisting medium is a parabola.

Like a cannonball or bullet dropping back to the ground, trading patterns that look like parabolas inevitably come back to earth as well.

For investors, the results can be disastrous. But for nimble traders on the right side of the "landing," a parabola can be extremely lucrative...

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Perfect Example: the Big Shake Shack Shake-Up

Shake Shack Inc. (NYSE: SHAK) was a much-ballyhooed IPO back in January 2015, and here's an unforgettable chart of the stock generated the summer after that debut.

Charts

See the parabola?

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Now, I know at least one trader who got caught shorting this parabola too early. The execution was flawed, but the trader's thesis was sound because, as you can clearly see, when this parabola ended, it really broke down.

I was teaching a seminar outside of Phoenix, Ariz. in 2011 when silver hit a similar parabolic top:

parabola

It had a two-day drop and fake-out to a higher high... but ultimately it went the way of all parabolas.

To be honest, these parabolic moves are fairly rare. So when I saw one at the end of last week, I jumped on it.

This Was a Massive, Profitable Move in Gold

As you'll see in the chart below, this one is a parabola that's going the other way: down. I found it because some good analysts I talk with were looking for a long sought-after bottom in gold.

But like a bus in the rain, it just wasn't coming.

Then, in overnight trading on Wednesday night, I saw this pattern show up in gold futures!

Extreme shape

Now, the only thing better than getting into a profitable position at the perfect "parabolic" moment is getting into two profitable positions, so I immediately scanned the markets for an additional play. I quickly found a triple-leveraged gold miners exchange-traded fund (ETF) on a similar parabolic course.

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And I knew that this move couldn't be sustained, so I recommended my readers get in a few hours early and advised them to prepare for the potential of some more downward movement before a huge bounce back.

That's just what happened. After going down just a tad, like I expected, the ETF I picked is already up more than 11%, and the options we're playing are up more than 50% in just about four trading days.

The parabola is another one of those rare extremes that, played correctly, can hand you immense gains in a "Stealth Profits minute."

In my experience, a parabolic move down quickly gives way to a bounce back. A very good time to get long wherever such a move is underway.

However, I don't have the same expectation for a prolonged move in the other direction like I do when we get a parabolic move into a blow-off top.

That's significant for you gold bugs out there. The intermediate bottom may be in, but we need a lot more price action to the upside for a technical confirmation.

The bottom line is this: The markets don't like parabolic moves and will always, always act to "smooth" them out. But, as with any extreme that arrives on the scene, you can make big, fast profits if you're on the right side of the action.

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About the Author

D.R. Barton, Jr., Technical Trading Specialist for Money Map Press, is a world-renowned authority on technical trading with 25 years of experience. He spent the first part of his career as a chemical engineer with DuPont. During this time, he researched and developed the trading secrets that led to his first successful research service. Thanks to the wealth he was able to create for himself and his followers, D.R. retired early to pursue his passion for investing and showing fellow investors how to build toward financial freedom.

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