On The Lookout, Part II

When you eat, breathe and sleep your work, sometimes inspiration strikes you at the most odd of hours. Last night, I'm tossing and turning, trying to relax when the following pattern came to mind.

First, let's review a few things to insure that we are all on the same page. In Comex silver futures, there are five "delivery" months. These are the contracts that are the most actively traded because they are the contracts with the most volume and open interest (liquidity). These five contracts are considered "delivery" contracts because they are the ones through which holders most often take actual physical delivery of metal. Yes, the other months do see some delivery action but it is the months of March, May, July, September and December where the bulk of the physical settlement takes place.

If one desires to take delivery through The Comex, one must first buy a futures contract. Let's say you wanted your 5000 ounces of silver in March so you purchase a March12 contract. When you buy the contract, you only have to put up part of the money, this is your initial margin requirement. However, once the contract expires, The Comex will ask you to put up all of the money needed to purchase the silver. The date where "100% margin" is required is known as First Notice Day. It's a sort of put-up-or-shut-up type of thing. By late February, trading in the March contract will have ceased so The Comex wants you out of the contract. Only those with intent to take delivery are allowed to continue to hold it and all of them must have 100% of the cost of delivery in their respective brokerage accounts by First Notice Day.

It is on First Notice Day that we get some idea of how many contracts are standing for delivery. Recently, this number has been coming in anywhere between 2,000 and 4,000 contracts, or roughly 10,000,000 to 20,000,000 ounces of silver. OK, are you with me so far??

Here's the rather alarming trend that hit me late last night:

For the December11 contract, first notice day was November 30, 2011. Closing price that day of the March12 contract was 32.87. BY 12/29/11, the MARCH12 TRADED AS LOW AS 26.50. DOWN 19.38%.

For the March12 contract, first notice day was February 29, 2012. Closing price that day of the May12 contract was 34.70. (It was even higher at 37.26 on 2/28.) BY 3/22/12, THE MAY12 TRADED AS LOW AS 31.18. DOWN 16.32%.

For the May12 contract, first notice day was April 30, 2012. Closing price that day of the July12 contract was 31.01. BY 5/16/12, THE JULY12 TRADED AS LOW AS 26.73. DOWN 13.8%.

Graphically, it looks like this:

Uh-oh. Maybe now would be an excellent time to go back and read this post from last Saturday:

http://www.tfmetalsreport.com/blog/3940/lookout

As you know, yesterday was option expiration and the final trading day for the July12 contract. The action now shifts to the September12 contract. First Notice Day for the July12 contract is this Friday, the 29th. If things get a little dicey next week and into mid-July, don't say you weren't warned. That said, I firmly believe everything I put into the Saturday post referenced above. IF a washout through $26 materializes, please do not panic. Recognize it for what it is: The Closing Acts of The Silver Cartel. Once they are net flat or even net long, things are going to get very exciting around here.

Be patient. Think clearly. Be rational. Prepare accordingly.

TF

p.s. My intention is to update TurdTalksMetals with a new podcast, every day by 4:00 EDT. Today, there will likely be a bit of a delay, however. Thanks for your patience and thanks to all who are supporting the new venture.

439 Comments

rocoach's picture

Inspiration

I'm all for it!

koan's picture

Looking for

Thurd?

EDIT: dang, been in gold and silver positions before wanted to round out the podium places.

ps. Thanks Turd. Don't say it often enough.

Mickey's picture

There is always something

but with all the stuff going on in the world--economically, financially, geopolitically--

and it all ties in to what is the set up Turd is discussing, metals will fly as the population in general realized its been scammed.

BASEBALL 13's picture

Saving up for Physical

Sooo, you're saying if this pattern repeats, we should hold out for physical purchases until AFTER the first notice day but before delivery? Also, another money making opportunity might be to buy some puts on silver-related issues or the options?...

Hmm...who's got some fiat to gamble?

BB13

thurd aye's picture

Top ten,reward for for my ag

Top ten,reward for for my ag buy today.

Somehow I don't believe that in the silver auction world at least, there is much comprehension of silver trends.People are selling low,buying high at some random fancy.I haven't sold an ounce,nor will I until I sort out any travel plans I am forming.Then it will be the worst of the coins to go, and hopefully,the rise will have started by then anyway.Stack on.

Planters's picture

Turds painted a nasty picture

Turds painted a nasty picture for short term silver, 

So wants to short this somabitch, if the damn g-s ratio wasnt so big I'd swap some. 

rl999's picture

John Williams of shadowstats

http://www.youtube.com/watch?feature=player_embedded&v=seBWlOMt2Tk

-Blatant repost, but everyone here should be familiar with his work, and his current thoughts.

"...Adjusted for real inflation of about 7%, Williams says, “GDP has plunged, and we have been bottom bouncing” ever since the financial crisis started. Williams says, “The next crash will be a lot worse (than 2008) because it will push us into the early stages of hyperinflation...by the end of 2014– at the latest.” Long before 2014, Shadowstats.com thinks there is a good chance of “panic selling of the U.S. dollar,” if the Federal Reserve starts another round of money printing (QE3) to save the system and the big banks.

"...There will eventually be a crisis to bring the system down as we know it. . . . We’re on the brink....at some point, you will see a new currency in the U.S.” The founder of Shadowstats.com sat down for a one on one interview with Greg Hunter to talk about the mathematical certainty of a systemic collapse in the not-so-distant future."

BigChief's picture

I wonder if they have any

I wonder if they have any silver eagles or maples?

Istack's picture

Great Advice

"Be patient. Think clearly. Be rational. Prepare accordingly."

Dagney Taggart's picture

So Following the Trend

So by July 9th, we should be down 10%, or roughly to 24.xx?

Got that, LCS? Maybe I'll see you on the 7th. I like 7s.

Edit: Haven't we already had a 7/7. Wow! What a coincidence.

proton777's picture

Even worse...up to 20%

up to 20%

Urban Roman's picture

Just in time

... for a couple good articles on ZH:

http://www.zerohedge.com/news/europes-monetary-twilight-zone-neutron-bomb-nirp

http://www.zerohedge.com/news/nirp-your-pocket-or-gold-just-happy-see-negative-rates

Does your stack shrink by 2% every year?

Of course the governments of the world will try to tax PMs ... good luck with that, governments.

rl999's picture

so metals will be discounted..

Now comes the great debate...where do I set my buy alert?

I magnified TF's chart to 400%, and it seems that each decline was roughly 4$...Maybe this is what those fiends at JPM have been waiting for - they have been working on a longer timeline than us - we kept asking why they haven't blitzed through 26$ to get to all those juicy stops below...because they have been building up for the big attack...now AG is right above support, and a 4$ drop would take it to those evil 18-22$ predictions.

Three times is a pattern to me. Anyone else think so?

¤'s picture

Explanation

Thanks for the explanation and your thoughts on what our seeing. It's funny how things are on the periphery of your mind and they just snap into place at the oddest times.

Pretty interesting stuff and a classic TF  post. Unique and insightful and maybe a little sleep deprived   Lack of sleep and eccentric/different thoughts allow for out of the box thinking more so then not.

I'll be buying silver if or when it drops again  if I have the powder to do so. I have no clue, but I don't see sub-$25 silver happening and if it does it will be fairly brief. That would be  my guess.

I'm rubbing my hands together at the prospect of it though and I think we'll see a huge smash down just before 'lift-off" and $25-ish silver will be a memory after that.  I hope.

Everyone have a great day!

Paladex's picture

Be careful!

Be careful, folks ... As soon as a pattern becomes obvious, TPTB tend to switch and do the exact OPPOSITE, in order to fleece people trying to ride their coattails. Remember Happy Tuesdays that suddenly became UNhappy Tuesdays?

robov's picture

Both Gold & Silver Charts

show long term descending triangle formations off of records highs for gold and previous high levels for silver. If one is going to look at the pattern from a technical basis where we have triple and quadruple bottoms and lower highs off those bottoms the chart really does scream out to a collapse of those bottom levels and more and are predicting or suggesting that we could see lower levels. It would make sense to me that there would be a number of benefits to this for the EE. As Turd states it allows them to extract themselves from their net short positions, prior to going net long  and makes BS Bernanke happy to have gold sub $1500 or even $1400 and silver in the low 20's or even high teens prior to announcing some for of QE. As hard as it is to accept it is looking more and more likely. I for one have only recently started stacking silver on the dips so would relish an opportunity to back up the truck and buy in the teens or low 20's. Problem is the premiums for physical would likely be ridiculous.

Descending Triangle is a decline to a new low on news followed by a kick back rally to an intermediate resistance level, a second decline to test the recent low followed by a second rally toward but not through intermediate resistance and finally a decline to fresh new lows on strong volume.

The technical target for a descending triangle is derived by measuring the vertical height of the triangle and applying this length to the new breakout level.

The descending triangle is a bearish formation that usually forms during a downtrend as a continuation pattern. There are instances when descending triangles form as reversal patterns at the end of an uptrend, but they are typically continuation patterns. Regardless of where they form, descending triangles are bearish patterns that indicate distribution.

For the descending triangle, the horizontal line represents demand that prevents the security from declining past a certain level. It is as if a large buy order has been placed at this level and it is taking a number of weeks or months to execute, thus preventing the price from declining further. Even though the price does not decline past this level, the reaction highs continue to decline. It is these lower highs that indicate increased selling pressure and give the descending triangle its bearish bias.

Dagney Taggart's picture

@rl

Maybe I'm wrong, but as we approach 0, $4 drops become less likely so there is a caveat to your thesis. A $4 drop at this point is a lot bigger deal than at AG 40.

rl999's picture

averages

some simple math from TF's chart above

the average monthly decline in $ =  4.72

the average monthly decline in % = 16.5

those numbers would put us at 22$, tho I have to think that if the price declined that far on it's own the prospect of additional harvesting would be high.

People argue that support would be considerable..Wouldn't it be to the benefit of the BoS to allow this drastic downward spike, and then use it as a springboard to start their own rally?  Don't they look for the best value for their money as well?

The Doc's picture

good catch TF, will be interesting to see

if the pattern continues.

-Doc

Dagney Taggart's picture

@Indigo

I'm with you. $25 is a very big deal. If silver miraculously went to $22, my LCS would bleed to death unless they threw on the $5 premium chastity belt.

Edit: Won't matter. It's no match for a $50,000 strap-on.

Edit2: .... on 3 consecutive days.

John Galt's picture

Cartel Fishing?

I'll be the first to admit that I'm not a big follower of charts, mostly because I do zero trading in the paper game.

However, it is interesting to watch them - being as ignorant of them as I am.

A little while ago both gold and silver spiked higher, only to get immediately dialed back again. The movement reminds me of fishing, and jigging the hook....trying to get a fish to bite on your bait so you can reel him in.

Perhaps this is a new cartel hobby, to dial the prices up and down...in effect, painting the tape on the charts, to try lure in unsuspecting suckers for a bite of the action.

Perhaps that sounds a little too conspiratorial, but clearly there are people who are going to make a great deal of money in this kind of whipsaw action - when they know in advance what directions the moves will be and place their bets accordingly.

(Oops, pardon me...that too sounded conspiratorial. Tsk, Tsk John Galt ...these are free and fairly traded markets, didn't you know?)

A1Topgun's picture

Time to Buy

Oh, time to take some of my SS check and buy a couple of ASE and Maples. When to buy??

Decisions, decisions, decisions.....

John Galt's picture

@ Dagney re: $22 Silver

If silver went to $22 there would certainly be those who would BTFD, although I would agree the LCS would probably add premium to protect themselves.

OTOH, I also have to wonder how much supply would be coming back into the LCS, with people liquidating to "cut their losses" out of fear prices would fall lower still.

A move to low $20s would not surprise me at this stage.

Stupider things can and are happening in the world.

Urban Roman's picture

Re: Cartel Fishing?

Perhaps this is a new cartel hobby, to dial the prices up and down...

In my reckoning it is a very OLD hobby of the cartel.

Gold Buffalo's picture

Summer Doldrums?

Last summer Turd was repeatedly emphasizing "summer doldrums".  Is there a reason it is not being highlighted again this summer?

Dagney Taggart's picture

@ Johnny G

Don't make me get out that strap on. Just kidding.

alphamorph's picture

But July 2011 isn't circled!!!

And the results were very different. 

Turd, can you explain how that differed from FND in 2012?  I remember very well what happened to my portfolio in Sept2011.

Dr G's picture

I'm praying for a washout

I'm praying for a washout below $26.

Let's put it this way. Here are your two choices for stackers: 1)Trade sideways continually for another 2-3 months (or more!?) in the $27-29 range or 2) trade lower.

Hmm, given that there isn't any interest in seeing the price move up on the Comex, I might as well have it move down so I can buy more!

Dr G's picture

Last summer Turd was

Last summer Turd was repeatedly emphasizing "summer doldrums".  Is there a reason it is not being highlighted again this summer?

Good question. If the Euro stays on the forefront of the papers for the duration of the summer, then there is no reason to think that this summer will be any different other than the prices will probably move lower due to Euro weakness.

It becomes a vicious cycle where the price moves lower but there is little interest in the commodity, so it stays lower.

Sisyphus's picture

Sorry to interrupt

O/T for my first post, but wondered if anyone had any theories about the gold miners. I am an investor, not yet a True Faith phyzz stacker, and bought into a leveraged gold miners ETF recently (result: have lost much money in last 2 weeks).

An article today points out that the major miners have not just underperformed gold, they've underperformed in a remarkably similar way.

http://seekingalpha.com/article/686731-gold-miners-low-correlation-to-gold-are-they-cheap-enough-yet

Is this collusion, conspiracy or co-incidence?

PS: I also bought a leveraged ETF in silver when the price was around $40. Oops!  I'm sure it'll all work out one day....

PPS: Sorry not to have a physical stack, but even Mr. Ferguson said he dabbled in beans, and presumably he doesn't keep a pile of them!? 

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