Strange Days, Indeed
Most peculiar, mama...
There's so much weird stuff going on, some days it's nearly impossible to know where to start. The Fed and other central banks have so gummed-up the system with their money printing, that almost all traditional methods of analysis, both technical and fundamental, are useless. The financial media, which is either completely uninformed/uneducated or complicit (or both!), SPINs and MOPEs nearly every headline into something it's not, adding significance to the unsignificant and downplaying or outright misreporting those items which truly are important. The result is this current state of bewilderment, a house of mirrors where nothing is as it appears to be.
I just wrote a lengthy essay about this back in October (http://www.tfmetalsreport.com/blog/4246/corner-copperfield-and-blaine) so it's not productive to plow that same territory again today. However, I have found some very strange divergences for you to ponder and I need you to consider them within this context.
Below is a table of data taken from various silver CoT reports over the last two years. I've tried to pinpoint information from six, different periods of either price tops or price bottoms. You'll note that, though this is not an exact science, we'll nonetheless be able to draw a few conclusions at the end.
BOTTOMS L.S.LONG L.S. SHORT RATIO CARTEL LONG CARTEL SHORT RATIO PRICE MOVE
12/31/12 38,291 9,104 4.2:1 45,415 90,751 2.00:1 $29--> ?
8/14/12 32,317 16,730 1.93:1 47,797 71,199 1.49:1 28-->35
12/27/11 24,026 17,171 1.40:1 41,224 55,356 1.34:1 27-->37
10/4/11 23,859 11,959 1.99:1 39,584 58,507 1.48:1 28-->35
6/28/11 27,439 11,441 2.40:1 36,894 66,060 1.79:1 33-->44
1/25/11 38,699 10,473 3.70:1 29,818 72,964 2.45:1 28-->49
So, what deductions, if any, can we draw from this relatively small sample size?
- First of all, don't get too sidetracked by the gross numbers as they are relative to the total open interest. This is why I've calculated the net long ratio of the specs and the net short ratio of the Cartel.
- If you throw out the 1/25/11 data, which preceded the HUGE move from 28-49, you see that the average net long ratio of the specs at the bottoms is around 2:1. Additionally, the net short ratio of The Cartel at the bottoms is generally around 1.5:1.
- Note the gradual increase in the gross long position of The Cartel versus the variance of the gross short position.
OK, now let's look at some data from price tops.
TOPS L.S.LONG L.S.SHORT RATIO CARTEL LONG CARTEL SHORT RATIO PRICE MOVE
11/27/12 51,804 12,351 4.14:1 42,525 99,317 2.34:1 34-->29
9/18/12 43,205 10,650 4.06:1 31,884 82,358 2.58:1 35-->30
2/28/12 38,012 8,009 4.75:1 33,802 78,395 2.32:1 37-->27
10/25/11 23,660 12,638 1.87:1 38,176 61,692 1.62:1 35-->26
8/23/11 38,756 11,745 3.30:1 34,281 81,380 2.37:1 44-->28
4/26/11 43,078 18,083 2.38:1 35,763 78,297 2.19:1 49-->33
- Note that all three price peaks of 2012 coincided with spec long ratios exceeding 4:1.
- Outside of 4/26/11 (when they made a pile of $$$), the spec shorts are almost always near 11,000 or so.
- With the exception of the 10/25/11 top (right before the MFG liquidations), all five other tops occurred when the Cartel net short ratio was in the 2.30:1 area.
- Excluding the 11/27/12 top, The Cartel gross long position averages about 40,000 at the tops.
Now, what kind of general statements can we make, again given this somewhat small sample size?
- The gross amount of large spec long contracts has grown over time.
- Regardless of tops or bottoms, the large spec short position remains relatively constant, generally in the 12,000-14,000 area.
- Though clearly larger in size at bottoms rather than tops, note how The Cartel gross long position has grown over time.
- Similarly, note the steady growth of The Cartel gross short position.
- Again, with the exception of the top that occurred with the failure and liquidation of MFG in early November of 2011, the most consistent indicator of tops and bottoms is The Cartel net short ratio. Anywhere near 1.5:1 is a clear buy signal and anything near 2.3:1 is a sell signal.
Now lets's look at the data released yesterday, based off the closing positions of last Tuesday, the 5th.
L.S.LONG L.S.SHORT RATIO CARTEL LONG CARTEL SHORT RATIO
42,449 6,588 6.45:1 46,293 98,239 1.99:1
So what in the world do we make of this? Can you see where this is all so confusing?
- At 42,449, the Large Spec gross long position looks more toppy than bottomy.
- And 6,588 gross shorts is an amazingly low number. The only number even close is the 8,009 from the highs of 2/28/12. Additionally, this puts the spec net long ratio is all the way up 6.44:1.
- But, before you conclude that the data is indicating a major top, look at the Cartel gross long position. At 46,293 it's just below the high of 47,797 that we saw at the price lows of August, right before the announcement of QE∞ and a price rally from $28 to $35.
- And the overall Cartel net short ratio is neutral at just under 2:1.
So, I'm not even going to attempt to draw conclusions from this...because I don't think you can! The main items that I think are significant are these, however:
- Currently there's hardly any spec interest in being short. Therefore, very little fuel for a spec short squeeze.
- Though there is some fuel for a long liquidation, at $31 how many can be forced out on a dip?
- An even if they did, would other "commercial" buying inhibit the ability of JPM et al to cover extensively?
- In the end, the single most intriguing aspect of the current reports is the brewing/ongoing Civil War between JPM and everyone else. Uncle Ted has proclaimed that this current data shows that JPM has become the "seller of last resort" and the only remaining "fresh shorter". I think he's right and the stage is set for a massive squeeze, not of the specs but of JPM. We simply need a spark.
The charts would seem to confirm this stagnation, too. Though I was hoping that the pennants on the hourly charts would close and propel prices higher, instead prices broke down and out back on Thursday. So now we await the closing of the pennants on the daily charts, instead. March, it would appear, is going to be a very interesting month. Until then, it looks like more sideways churn.
Just a couple of other items you might like before we call it a weekend. First, several folks found this presentation yesterday and emailed it to me. Basically chart porn but fun to look through anyway: http://www.businessinsider.com/frank-holmes-gold-charts-2013-2
One of our sponsors, JMBullion, sent me this handy link. Please take a moment to check it out. You'll likely find it helpful. http://www.buysilvereagles.com/
And I'd like to close with this. There has been lots of debate here over the past few days over what information is important on "Main St" and what should be taken to the forums. Frankly, since I can't police the site 24 hours a day, you all have quite a bit of latitude. The number one thing that we all must keep in mind is this: I built this site to help and to educate. Though prepping and conspiratorial topics are sometimes interesting and enlightening, the main focus must remain on metals and investing. To that end, please consider this email that I received late yesterday. My goal is not to be some type of draconian czar who rules content with an iron fist, however we must remain relatively on-point at all times if we are to do the greatest good. I ask you to always use discretion when posting and to consider whether or not your are helping the site to succeed in its overall mission.
I've been a member of this site for a year and 4 months and a reader for a while before that. I am not typical of those who make up the vast majority of membership. I am female, unmarried and make under $40k a year. I am just an average person who, by a most fortunate turn of events, found your site and it changed my life. Blinders came off and I began to see the world for what it really was. My very small stack is held by very strong female hands. Thank you for helping me see ways to save my financial future. I suspect the creation of this site was to reach as many people like myself..former sheeple.
I live on Mainstreet...I read every post, every day and am energized by the thoughtful and insightful posts...even the provocative ones..however..
I am in the camp of common sense. This is a metals blog and all things relating to it, and I accept and appreciate the ancillary topics that get brought up and the subsequent discussions that result. What I am really really REALLY finding difficult these days is the proliferation of all these posts that you have repeatedly asked folks to take to the forums, ESPECIALLY the political wing nuts. The "you must have issue with my smarmy, irrelevant and arrogant posts which push my own agenda and bring nothing of value to this blog because you're a liberal bastard" kinds of thing going on. I adore Dr. J, Ivars, Steve, Green Lantern, Cal Lawyer and of course..DPH! Many others too...Mainstreet is FILLED with wonderful minds and I am in awe of these folks. I know you make requests periodically to us members to keep Mainstreet "clean", but these same individuals will behave for a short while then decide to vomit all over this forum yet again.
I have an ignore button and yes, I do know how to use it, but it's the discourse that those posts create that I find particularly distressing. I can only speak for myself, but I suspect there are many many more like me who have fled in silence rather than deal with the muckrakers. So I respectfully ask...as someone who truly loves this site and visits every day and listens to your message..can something be done to keep Mainstreet focused?
Thank you for all you do, **********
Have a great weekend. See you Monday and be prepared for volatility as the Chinese New Year holidays begin.