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!