Here We Go Again -- Another Silver Short Squeeze Looms
Back on April 15, we accurately projected that a major Spec short squeeze was brewing in the coming days. Nine days later, silver shot higher in a move of +14% in just over three weeks. Well, guess what. The conditions that created that move have returned and another significant short squeeze is right around the corner.
Before you read further, it's likely best if you go back and review our post from April 15. Back then, price was being beaten lower by the momo-chasing, HFT-algo Specs and most "analysts" thought that new lows for silver were right around the corner. Not here at TFMR, however. Here are the links: http://www.tfmetalsreport.com/blog/6767/another-silver-short-squeeze-looms & http://www.marketwatch.com/story/financial-analyst-forecasts-imminent-rise-in-the-price-of-silver-2015-04-16
As you've now just read, the key to forecasting the impending squeeze was in watching the silver Comex open interest numbers. Total silver OI spiked to a new all-time high on March 18 and the very next day a Spec short squeeze developed that rallied price nearly 13% in two weeks. After being squeezed out to an OI low, the Spec shorts gradually returned and total OI made a new all-time high on April 24. The very next day the squeeze mentioned above began and price rose 14% in three weeks.
Below is a chart I provided "Vault" subscribers back on Monday. Not the ebb and flow of Spec short money as evidenced by the increasing and declining Comex open interest levels:
And so now, here we are again...
Despite silver price being flat for the week, total Comex silver OI has risen by another 4% just this week, reaching another new all-time high on Thursday of 191,663 contracts. As an aside, I mentioned this to Dave Kranzler yesterday and this led him to write this terrific commentary last evening: http://investmentresearchdynamics.com/silver-manipulation-may-be-the-most-extreme-in-history/
Though Dave is certainly correct about the corrupt nature of the Comex and the disgusting amount of naked shorting, I want to focus instead here about the nature of this next short squeeze...and here's the important point:
Just as in mid-March and late April, the speculative trading funds have once again been led into a disastrously concentrated short position in Comex silver. The extreme size of this position is clearly noted again by the new all-time high open interest numbers. Additionally, just as in March and April, we are again approaching an FOMC meeting where the idea of "raising the Fed Funds rate" will be addressed but not acted upon. Combining these two factors allows us to conclude that another Spec short squeeze is right around the corner.
The chart looks to confirm this, too. If we connect the dates the most recent squeezes began and extend the line forward, look what we get:
Finally, just to show you how the current cycle is simply repeating, check this paragraph from the April 15 post linked above:
"To me the conclusion is quite clear. The risk in silver is NOT to the downside with a drop through $15.50. Instead, the risk is being taken by the Spec shorts. They are being set up once again for an epic squeeze. This move is not yet imminent and it may be timed instead for the next FOMC meeting in two weeks. This would coincide with May silver contract expiration and the mandatory Spec short-covering that would naturally occur anyway."
Now, let's take that paragraph and substitute some words to adjust for the calendar:
"To me the conclusion is quite clear. The risk in silver is NOT to the downside with a drop through $15.50. Instead, the risk is being taken by the Spec shorts. They are being set up once again for an epic squeeze. This move is not yet imminent and it may be timed instead for the next FOMC meeting
in two weeks next week. This would coincide with May July silver contract expiration and the mandatory Spec short-covering that would naturally occur anyway."
Based upon the experience of the last two squeezes, what should we expect this time? Most likely a surge in paper silver that begins sometime in the next week or so, leading to a rally that extends to and through the 200-day moving average for the July contract, currently near $16.87. I'd say the area around $17.30 is a pretty good target again. As price nears there, JPM et al will slam the brakes, open interest will be back down after all of the Spec short-covering and the entire wash/rinse cycle will begin again as price falls back down and through the moving averages and the Specs shorts come charging back in.
So there you have it. I think I'll wrap this up with the same concluding paragraph we used back in April:
"Therefore, could another squeeze and panic develop, similar in size and scope to March (and April)? Certainly. And could you profit from this move? Absolutely! Those willing to gamble in The Casino and confident enough to take a contrarian stand against the momo-and-headline chasing Specs, will very likely be richly rewarded. These profits can then be used to acquire additional physical metal to add to your stack in preparation for the eventual end of The Great Keynesian Experiment."