A Rally Cometh?

Tue, Oct 11, 2011 - 6:29pm

Though I am still guarded in my short-term optimism, I have been itching to give you a rally thread. A couple of items have come together today so I'm ready to stick my neck out just a bit.

Before we begin, I'm not talking about THE rally. I'm talking about A rally. The metals still have lots of work to do in order to generate sufficient speculator interest to really get things rolling. However, all trips begin with the first steps and I think that we are close to embarking on a fun, little journey.

First of all, look at the HUI. After having been savagely beaten for the past two weeks, it has bounced off of what looks to be stout support around 500. It went out on its highs today and rests tonight at its highest level in over a week. This is very encouraging.

Even more encouraging are the latest Open Interest numbers. During the trading day yesterday, gold rose about $35 and silver closed nearly unchanged. However, gold open interest declined by about 2300 contracts while silver expanded by about the same number. How can this be, you ask? Actually, it makes perfect sense when you dig into the numbers and, while keeping in mind that this is primarily guesswork based upon experience, begin applying some common sense.

In gold, the change in OI was primarily due to a 2100 open contract reduction in the Dec11. This is short-covering, my friends, most likely of The Cartel variety. From this, we can conclude a number of things:

1) Just more proof that this latest $200 beatdown in gold was orchestrated by The Cartel in order to allow themselves room to cover contracts at lower prices.

2) Net short-covering (buying) by The Cartel yesterday provided the impetus for the $35 gain.

3) Net short-covering (buying) created conditions of more buyers than sellers causing the gain.

4) A short-covering rally of this magnitude is a clear signal that the selling pressure of the specs is nearly exhausted. In other words, those who were going to sell have now sold.

All in all, this is a reason to be short-term bullish.

In silver, the picture is the same but different. Yesterday's OI expanded by about 2200 contracts and almost all of the expansion was in the Dec11 and Mar12 contracts. However, silver was unchanged. Again, how can this be? It's quite simple, actually. Nearly every new spec buyer was countered by a new seller. Believe it or not, this is actually a "normal" market in silver. Specs buy and The Cartel supplies the fresh paper. It's worked that way for years. The odd thing is the apparent willingness of the shorts to add to positions ahead of the CFTC meeting scheduled for 10/18. Here's what I'm thinking:

1) Total volume was very light yesterday, around 29,000 contracts. Maybe it wasn't JPM supplying the fresh paper. It could have been some other seller or any of the "raptors", as Ted Butler calls them.

2) Silver was up almost $1 today. If I'm right, then the OI numbers we get tomorrow afternoon (again, the numbers tomorrow reflect today's close) will show a total OI that is nearly unchanged vs Monday.

3) Why would that be? Because today's rally in silver was caused by some additional new longs (more OI) and some fresh short-covering (less OI). This would produce a $1 rally on very little OI change.

Anyway, what does all this mean?

The miners are rallying. Many here feel, as do I, that moves in the miners precede moves in the metals.

Open interest looks to have bottomed. Spec selling has ended and spec long money looks to be moving back into the metals. Short-covering by The Cartel looks to be intensifying as they fear that they will not be able to shove prices much lower.

Now, let's look at the charts. First, gold. Note that gold is pressing up against significant resistance between 1680 and 1705. Should it clear that area...and I have a sneaky suspicion that it soon will...your next target is 1755-1765. That may not sound like much but that would be a $100 rally from where we stand this evening. Not too shabby. Additionally, a rally that carries gold back to 1765 may extend through there and, by extending higher, would excite more spec longs back into the pit. Gold could trade back above 1800 very quickly.

Once again, silver is the same yet different. Technically, it is trying to rally but it is going to be really hard for it to get through 33-33.85. Really hard. In fact, its best chance may be to sneak by that entire area in a day or two. Never let The Cartel know what hit them. Either way, IF it can get through 34...and that's a big IF...it will move quickly toward $37 and, from there, be poised for a late-autumn rally back toward the highs of August.

OK, so there you go. Like I said, I've been itching for a rally and it certainly looks like we are on the edge of one. Yes, I know I've been warning you about the potential for drops to $1500 and $24. That potential still exists. However, please keep in mind that I can only work with current information. Situations change and we have to be able to adapt and adjust to the changes. For now, many signs point to a rally. Let's just see what happens.

Have a great evening and a fun Wednesday. TF

9:50 a.m. EDT UPDATE:

The Battle Is On.

After a strong overnight rally, The Evil Empire is actively suppressing price this morning. Note that two forays into the Max Q resistance area have been repelled by The Forces of Darkness. The Evil Ones saw gold approaching 1700 and silver above 33 and knew they had to act. Knowing that today is Wednesday, which means that they have until next Tuesday to cover any new short positions, Satan's Spawn have been actively supplying fresh paper metal this morning. The keys to watch from here are the support levels I've drawn below. Holding those levels will indicate that short-term specs are returning to the market. Getting that money back is vital to turning the charts higher and forcing our Tyrannical Oppressors to retreat to higher ground.

More later. TF

About the Author

turd [at] tfmetalsreport [dot] com ()


Red Pill
Oct 13, 2011 - 3:21am

@York Rite

yes, the more recent part of Turk's calls have gone the wrong way, but why aren't you including the fact that he was the 1st person (I heard anyway) saying:

"forget the summer doldrums, summer is going to be explosive"


he was saying that in May when we were mooching around $1500, its now at $1650 having been to $1900, all I heard from most people at that point was "doldrums, down, sell" etc.

so take your agenda somewhere else, because it's way too obvious here.

Oct 13, 2011 - 1:13am

Removed comment

Removed comment.

Oct 12, 2011 - 5:24pm

Ivars! I can't see your charts and analysis

Ivars, I want to see your charts. The sapo site is not working from yesterday. If you read this, would you reply to this?, Many thanks.

Oct 12, 2011 - 5:12pm

Thanks BSD wanted to make

Thanks BSD wanted to make sure it wasn't my browser.

Oct 12, 2011 - 5:12pm


Same here. After Tyberious there is a blank post by Silver Foil Hat.


Oct 12, 2011 - 5:08pm

Seems to be a problem in the

Seems to be a problem in the newest thread I cannot see any of the posted comments.

It cuts off toward the end of the page and no comment box.

Just a friendly heads up

Thank you

Oct 12, 2011 - 4:06pm

Celente on KWN ... Again

For the second time in as many weeks, Celente is on KWN. Don't bother - same old poop from him. Not that he's wrong, but his blabber is completely void of anything in terms of hard data to act on. If he does this to entice me to subscribe to his newsletter, it ain't working. Nice Bear Ear-Candy, but it's all said here with more flair and some interesting analysis to boot. Feed The Turd.

Oct 12, 2011 - 4:03pm

Change one letter and you have ...Band on the Run

Wings - Band On The Run (Original Video)

Wings - Band On The Run (Original Video)

Visit the FAQ page to learn how to track your last read comment, add images, embed videos, tweets, and animated gifs, and more.

I Run Bartertown
Oct 12, 2011 - 3:56pm
Oct 12, 2011 - 3:52pm

...Or a run on the banks?

JPMorgan Net Income May Show 10% Decline Q By Dawn Kopecki - Oct 12, 2011 12:00 AM ET

JPMorgan Chase & Co. (JPM) may say profit slid 10 percent in the third quarter, the biggest drop in more than two years, as Europe’s credit crisis and the U.S. debt- ceiling debate spoiled optimism for an economic recovery.

Tomorrow’s report from the New York-based bank will probably show earnings of $3.96 billion, according to the average estimate of 18 analysts surveyed by Bloomberg. That compares with $4.42 billion a year earlier and $5.43 billion in the three months ended June 30.

Jes Staley, chief executive officer of JPMorgan’s investment bank, braced investors last month for a 30 percent drop in trading revenue from the second quarter, when the company generated $5.5 billion from that business. He said fees from investment banking would tumble almost 50 percent to $1 billion...


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