Shorts Getting Tight?

The Spec Shorts have been feasting on the easy momentum of the downside trade. Now gorged, pockmarked and slovenly (picture Jabba The Hutt), are their shorts beginning to get a little too tight? Have they begun to bust at the seams? It's only a matter of time.

But don't expect this to be easy. First of all, we still haven't accomplished much. Yes, gold had a successful test and hold of $1565 yesterday before skipping higher today. That's a very positive development. And, yes, silver has been trading back above $28 and, more specifically, $27.93. This is great news, too. But The Hutts are never ones to go silently into the night. They will fight to maintain control. Expect stout resistance at easily-determined points. Some Hutts will double-down as they throw good money after bad in a desperate attempt to regain downside momentum. Will they succeed in the short-term? Perhaps. But in the end, the deck is stacked against them. The next move in the metals is HIGHER not lower and back toward the top of the now 18-month ranges.

That said, my job is about to get considerably easier. When The Cartels are jamming things downward, as they have for the past 5 months, all of the fundos and TA points are often thrown out the window. However, our current position is entirely different. We're now dealing with Spec Shorts who will invariably turn and cover at easily-identifiable technical levels. We'll also be able to anticipate points at which they'll go flip long. Of course, The Cartels and other commercials will be involved the whole way and, when the see opportunities to let the Specs add some shorts back (like yesterday), they'll almost certainly let them. But once this all turns...and it might have already done so with the blowout breakdown/bottom of last week...the general trend will be UP and not down and dips will/can be aggressively bought.

So I want to start today with a reposting of two charts from last Saturday. The breakdown of last week has all the earmarks of a bottom. WHY? For the same reason that a blowoff top often sparks a trend change. In a blowoff top, the last remaining longs are drawn in and the market reaches a point where everyone who was going to buy has bought. Then you're left with more sellers than buyers and the trend changes. Go back and look at the action of late February 2012 for a classic example. Last week's action was this same process in reverse. The metals broke down and out of their 6-week ranges since the lows of mid-February. This invariably drew in the final remaining short interest. Heck, Friday's silver OI reached a multi-year high of 159,386! Incredible!! For some perspective, here's a c&p of a comment I placed into yesterday's thread:

"On Friday, as silver jumped 45¢, total silver OI surged by 2,174 contracts to a new multi-year high of 159,386.
Again, I cannot stress enough how totally F'd up this is, especially in the post-MFG era. For perspective, MFG declared bankruptcy on 10/31/11. A CoT survey was taken the next day, 11/1/11. That survey showed:

  • Total gold OI of 442,435. As of Friday, total gold OI was 412,744. Down 6.71%.
  • Total silver OI of 108,675. As of Friday, total silver OI was 159,386. Up 46.7%.

The price of gold closed on Friday 10/28/11 at $1746.20. That same day, the price of silver closed at $35.27."

So now here are the charts from last Saturday. Stare at them and imagine an uptrend from here and now what do you see? By later this month or early May, a very bullish chart with a clear bottom.

OK, with all that stated, let's move on to the current charts. Again, price prognostication is about to get a lot easier as the levels that The Hutts will attempt to defend are easy to identify. For instance, the 20-day MA for June gold is $1592.60. What is the high for today in that contract? $1590.10. From here, expect a fight at/near $1595, the 50-day MA currently near $1610 and then the 1/3/13 low of $1630.

And here's where we are with silver. Again, I'm presuming that this rally holds and that we've turned the corner. Of course, The Hutts could re-assert themselves and hold us off for a few more days but the physical picture likely precludes that. (More on that in a minute.) For now, silver needs to maintain a $28 handle, specifically it needs to stay above the $27.93 low of 3/1/13. From there, The Hutts will turn and fight at the 20-day MA currently near $28.30 as well as the bottom of the previous range, near $28.40. And of course the epic battle will be near the 50-day and old lows of 1/3/13, both near $29.35.

Timing all of this is, of course, challenging. There is still the risk of an ultimate stop-flushing exercise that drops price through $26. However, the action since last Thursday has greatly reduced this likelihood. Far more probable is the outline I laid out above where last week is shown to be the final, short-suck-in sinkhole. Let's just see how the next few days play out and we'll have a better idea. Again, though, I am 100% confident that The Hutts are about to get a religious experience and that the next move is UP within the range, not down through and below the range.

And it's the physical picture that ultimately gives me this confidence. All the paper jockeys look at The Comex and think they've got it figured out. What fools! This is becoming a physically driven market and, as stated last week, The Comex is losing credibility and relevance "gradually and then all at once".

Did you notice the timing of today's rally. Unexpectedly large physical allocation demand at the London PM fix caused the Bullion Banks to get on the bid in order to hedge. This spike higher only exacerbated the nervousness of the most-weakhanded Hutts and away we went...UP $12 in gold and 60¢ in silver, all in about 30 minutes. So, global physical demand, executed through London, drives paper price higher in New York. Get used to it. This is where things are headed. The BBs know this and thus they've been desperately covering shorts since October. The momo-chasing Hutts are about to get an education in bullion banking and unallocated leverage.

So, sit back and relax. Maybe even buy some more physical today, while you still can and at these deeply-discounted prices. And keep an eye on the N-Kos. That "situation" is getting curiouser and curiouser with each passing day.

Have a great day!

TF

390 Comments

Turd Ferguson's picture

And another reprint from yesterday

MODERATOR

Yesterday, I posted this in the comments. Remember, we are told by the "experts" in the media that the GLD is shedding inventory because investors are reallocating and moving away from the metals. The 10% drop in "inventory" YTD supposedly has nothing to do with physical demand. No way that it's global HNWs, funds, sovereigns and Central Banks redeeming shares and taking delivery of physical. Nope. Move along. Nothing to see here.

So, then, how do you explain this? As gold falls in price, "inventory" is drained but as silver drops in price, "inventory" is added. Hmmm....
 

"On Friday, gold closed at $1576. As of Friday, the GLD held in "inventory" 1,205.31 metric tonnes.
On Friday, 10/28/11, gold closed at $1746. On that day, the GLD showed an "inventory" of 1,243.55 mts.
In the grand scheme of things, that's at least logical and plausible. Now get ahold of this...
On Friday, silver closed at $27.22 and even though the SLV showed a drop of nearly 6MM ounces of silver on Friday alone, it still showed an "inventory" of 10,498 metric tonnes.
On Friday, 10/28/11, silver closed at $35.27 and the SLV allegedly held 9,764 mts.

HUH???

Let me see if I've got this straight. Over the past 18 months or so, gold has declined in price by almost 10%. Over that same time period, the GLD has seen its "inventory" drop by about 3%. (Keeping in mind, of course, that the GLD "inventory" is down more than 10% YTD 2013.)
In contrast, silver has fallen in price by roughly 23% but the SLV "inventory" has grown by 7.5%.
So what does all this mean? Perhaps you should consult Sir William of Ockham for your answer..."

achmachat's picture

view from top!

on this glorious day :-)

Road_Scholar's picture

Speaking of "tight shorts"

It's easy to grin, when your ship comes in,

and you've got the stock market beat;

but the man worthwhile, is the man that can smile,

when his shorts are too tight in the seat! 

(From Caddyshack- Judge Smails when christening the Flying Wasp)

images?q=tbn:ANd9GcQVAS0gHVT2T-t94evmKxN

The short hedgies sure hit one OB today for Masters week... 

The Watchman's picture

Hedge Funds May Need Some Of These

firekids-shorts.jpg

A.B.'s picture

Top 5

Tighter and tighter....

Karankawa's picture

Top 10?

5th  yes

silver66's picture

sweet--now I will read

Silver66

Oldhat's picture

octoham

octoham

Sir William of Ockham says "he who has ate post have splinters in their stool"

JoshuaRoberts's picture

'Yesterday, I posted this in

'Yesterday, I posted this in the comments. Remember, we are told by the "experts" in the media that the GLD is shedding inventory because investors are reallocating and moving away from the metals. The 10% drop in "inventory" YTD supposedly has nothing to do with physical demand. No way that it's global HNWs, funds, sovereigns and Central Banks redeeming shares and taking delivery of physical. Nope. Move along. Nothing to see here.

So, then, how do you explain this? As gold falls in price, "inventory" is drained but as silver drops in price, "inventory" is added. Hmmm...."

lmfao

NEVER EVER!! XD

the institutionals would never manipulate the market while stacking and telling the slaves to buy securities SAY IT AINT SO AUNTY EM! SAY IT AINT SO! XD

Cry Me A River's picture

Are We Close To A Turn?

WELL, YES, BUT...

Today is just one day of slightly rising prices. I still expect only what the COT has been forecasting for weeks now—continued lower prices. However, as I’ve said previously, it seems that the commercial raids have recently caused less damage to the silver price. Therefore, we are probably within days or weeks where something might materialize to cause a turn.

Raids have diminishing effects where the commercials may recognize that the trend is exhausted causing them to think a probable turn is upon them. Strictly speaking, although the trend of commercial short covering is probably still intact and most likely will continue until a real bottoming pattern develops, I’m always on the lookout for the actual beginning of a trend turn. But I’m not going to try to guess anything in the hopes of becoming a hero.

A "real bottoming pattern" doesn't usually develop until a higher low in the net shorts, as a percentage of comex inventory, shows. This means that the commercials must test the strength of the trend by raiding the price in order to further cover more shorts into price drops. If this “test” fails to significantly drop the price enough to cover significant amounts of short volume, they can let the price rise a bit to begin the next cycle

Technically, this “allowing the price to rise a bit” could be called the “actual beginning” of a trend turn, but it impossible to distinguish it from noise or price bounces at the bottom of a price drop.

Once we see  a COT that shows INCREASING net short volume, the previous week’s price rises can be attributed to the commercials “allowing the price to rise” because they conclude the cycle needs to be turned..

Today may mark that day where they “let the price rise” in order to start this next cycle, but it can’t be known until after the fact and until we see the next COT report this Friday.

As I’ve said in previous COT Reports, I've been looking for a COT that shows an INCREASE in net commercial shorts, but have not seen it yet since highs were reached on Feb 7th. 

If the next COT report marks an increase in net shorts, it should then be followed by an attempt to retest the lows in the COT net percentage line. If a higher low develops, we could then say the trend has turned.

Dr Jerome's picture

401a brokerage account

Well, I have my new employers retirement money stuck in a new 401a plan where I can only invest in ETFs, so I may as well trade it just for fun.

I just bought into NUGT a couple of hours ago ...  3x ultra bullish gold mining fund. It moved up 10% today. I got in on the end of today's run. It is currently priced at 23.89 and was at the $200 level when gold was at 1900. Seriously oversold in my view. 

I have also been layering into GDX, which was looking good until last weeks smackdown. 

Long term stuff. Maybe it will not get confiscated. 

I am all ears for other suggestions on long term commodity funds.

JustMy02's picture

Just maybe it's all fraud!

Just maybe it's all fraud!

Save_America1st's picture

And remember what Santa said recently...

Sinclair - Stunning Shift In US Government & Fed Gold Policy

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/4/7_Sinclair_-_Stunning_Shift_In_US_Government_%26_Fed_Gold_Policy.html

"...Gold is no longer the enemy of the dollar.  It might in fact be what saves it.  Eric, I have been talking to you about the Western suppression of the price of gold, and while that may last for a little while longer, I suspect that time period has now in fact come to an end.

What you are going to see now, and what the gold community doesn’t understand, is that the Fed and the West are now going to encourage the price of gold to go higher.”

*********************************************************

And won't this bring silver rocketing right along with gold if this in fact does happen? cool

Cry Me A River's picture

I Couldn't Make It Any Simplier, If I Wrote It Myself

"A bottom is an event where prices reach a low, then a lower low, and then a higher low.

The first low signifies the pressure from selling was greater than the pressure from buying. The second lower low suggests that selling still had more pressure than the buying. The third higher low suggests that buying pressure will not let prices fall as low as the previous low. This turning point from selling pressure to buying pressure is called a bottom."

http://en.wikipedia.org/wiki/Bottom_%28technical_analysis%29

Stack'em High's picture

We're lucky to have Turd...

Tekoa Da Silva should follow the yellow hat... If so, he would have known what was going on long before yesterday. Not an insult to him, just a praise to the TFMR.

"A stunning piece of information was brought to my attention yesterday... Over the last 90 days without any announcement, stocks of gold held at Comex warehouses plunged by the largest figure ever on record..."

http://bullmarketthinking.com/comex-gold-inventories-collapse-by-largest-amount-on-record/

Turd Ferguson's picture

You're getting warmer

MODERATOR

Sir William would be proud.

A.B.'s picture

Bitcoin frenzy..

Continues. Now around 224 and looks like there is no stopping. 

However it is not the real thing, only an imitation of the real thing. 

Once the short squeeze reflects on the prices and silver and gold brakes the key levels, then everybody will be rushing to own some. When this happens, we will be welcoming the long waited parabolic moves where the sky will be a bit closer.

in PM we trust. :))

SilverSurfers's picture

the title?

The now, of late, Americana aint buying it. Probably, few in here might want it so, you know, the good old bakkie chewin boys, but many hate it, for the learned highs, though at first, very very cautiously, things move slow but sure, toward that end. So, is it getting flipped out, the necessary precursor to utopia, donno, DMorgan, HELP!!!

Save_America1st's picture

Caddy Shack...So what!

So what?  So let's dance!  lol

tumblr_lef5unarbX1qezk1v.gif

billhilly's picture

less complexity, more simplicity

Bitcoin,

- I have never read anything about it (except a headline)
- I don't want to read about it.
- Ignorance CAN be bliss.
- Even the name sounds phony.
- "Gold" coin, "Silver" coin, THAT has the right sound.
- And AHHH, the feel of REAL money clinking in your hand.
- Keeping it simple, keeping it real !

Turd Ferguson's picture

Regarding equities

MODERATOR

http://www.zerohedge.com/news/2013-04-09/dow-jones-new-all-time-highs-heres-why

Every once in a while, I feel like I have to remind everyone.

Each and every day, the Primary Dealers get two billion dollars from The Fed. TWO FREAKING BILLION!!! Part of the $85B/month in QE∞ is $40B/month in free money to the banks.

The banks still hold billions and billions of worthless MBS from pre-2008 and The Fed is buying them at a pace of $40B/month, at 100¢ on the dollar.

Now, most of that money needs to flow into treasuries in order to keep the bond market afloat, BUT NOT ALL OF IT AND NOT EVERY DAY. This leaves literally billions of dollars laying around every day for the PDs to juice the stock market. Throw a couple hundred mil at the ES. Maybe bang some bucks into SPY. And UP, UP, UP she goes. IT'S THAT SIMPLE AND THAT'S ALL IT IS.

The Bernank gets his beloved "wealth effect", for the banks, at least. Please don't buy into this charade.

A.B.'s picture

Netdania silver volume.

Daily volume is heading for the record high of 7 million today. 

Go baby go.

Turd Ferguson's picture

BTW, total silver OI was UP

MODERATOR

BTW, total silver OI was UP another 2,200 yesterday to an earth-shattering 161,574. AMAZING!!!

At the same time, gold OI sunk again to 410,138. Down another 2,600.

rvnewstoday's picture

As a gold futures exchange transforms to a cash exchange

Found this on Bull Market Thinking: It's seems very strange things are happening in the Comex. Will it turn into a cash market sooner than later as it appears. Going to see Jim Sinclair in Toronto on Thursday, incredible man, met in New York a few weeks ago and is very helpful.

Socrates Berlin

Check out link below.

http://www.rvnewstoday.com/2013/04/09/as-a-gold-futures-exchange-transforms-to-a-cash-exchange/

The Vet's picture

Netdania silver volume.

So who is taking the other side of the trade?  Even shorts buying to cover need a seller, and anyone selling here is still selling very cheaply.  Obviously however they are still selling.

Al Huxley's picture

LCS Out of All Bullion

My local coin store, has always been extraordinarily well stocked, so I never even check availability.  Imagine my surprise (and frustration) when I stopped by today and found out they have nothing in stock.  Pay now and pick up next week was the best available option.  At this point, I don't care at all what ANY bear says about the price of gold and silver.  When I can no longer buy them, that tells me all I need to know about how irrelevant the Comex price is.

treefrog's picture

how many tulip bulbs can you

how many tulip bulbs can you get for a bitcoin?

how many beanie babies?

zman's picture

Regarding equities- Since the

Regarding equities- Since the PD's are using QE money to buy stocks, we should not expect a correction in stocks anytime soon, would that be a safe assumption?

I think the gold market needs a failing stock market to start it's new leg of the bull market, or will both stocks and gold rally together in the months and years ahead?

I guess if something big happens in the Eurozone or somewhere else, the selling will be so strong in equites that the PD's will not be able to make any difference.

The Vet's picture

how many tulip bulbs can you get for a bitcoin?

About the same number as you can buy ounces of paper silver... (Stick to tulips hower, as those are real and paper silver is not).

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