Astonishing Open Interest and Option Expiry

218
122
Thu, Feb 23, 2012 - 10:57am

Thanks to all who sent in some feedback to the questions I posed in the previous thread. Before we get started today, I should probably explain and answer those questions.

Though I appreciate your concern, The Turd is not beaten down or frustrated. I only posed those questions in an attempt to guage just how closely everyone follows my thinking on this site. Please understand that I realize that this is difficult to do. There are lots of other, PM-related sites out there and I tend to provide quite a bit of new content each day so it can be challenging to keep up. The only thing I occasionally find frustrating is when folks espouse that "Turd said this" or "Turd thinks that" when I never said or thought anything of the sort. Comes with the territory I suppose but it does require some patience from time to time.

So, please indulge me while I answer the questions I posed to you in the previous thread.

What do you think my PM price objectives are for 2012?

I know I gave a gold target which was $1750 + 25% = $2100 with a likely intra-year high of $2200. I don't think I ever gave a silver price target though I do recall mentioning to someone that even $42 would represent a HUGE year as that would be a 50% jump from the $28 close on 12/30/11.

Am I currently bearish or bullish on the PMs?

I am extremely bullish long and intermediate term. I'm always that way. Occasionally I get cautious in the short-term which is where I am now in silver. In gold, I am short-term bullish though the $1800 level will likely provide considerable short-term difficulty.

Do I make any money off of running/managing this site? If so, how much per month?

Most of the time, it's a break even operation. This month, though, it's not as the extra bills associated with "fixing" the site after the 2-day DoS attacks were expensive. This leaves very little money for promotion and growth of the site, which is the primary rationale for beginning the very low subscription fee for TA next month. The generous donations help a great deal and are the primary way I receive "compensation". Keep in mind, however, that The Turd is not a 501c3 organization so your donations are not tax-deductible.

Does my TA work and is it useful? If not, why not?

This question is in response to the know-nothings who like to smugly claim that "TA doesn't work in manipulated markets". This drives me crazy because I have maintained since the start of the old site that the only reason my peculiar brand of TA does work in the PMs is because they are so heavily manipulated. Here's a link to the old site where I discuss this. Note that the date is about one week after the site began.

https://tfmetalsreport.blogspot.com/2010/11/turds-crystal-ball.html

Anyway, thank you all for your feedback. Let's move on, shall we?

Next up is a copy and paste of a comment I posted late last evening. Even though silver has finally broken through $34.40 this morning, I stand by the notion of an impending EE raid to drive longs out of the March12 contract.

"I feel compelled to comment on the absolutely astounding and extraordinary OI numbers from yesterday.

First of all, keep in mind that I was concerned that the Comex was about to fade into irrelevance last December, post MFingGlobal. I remember stating at the time that if total OI continued to fall through 400,000 in gold and 100,000 in silver, all bets were off because the only major players left in the pits would be The Cartels. Because of this, I began tracking the daily OI changes in January and now have a rapidly filling spreadsheet of data.

Yesterday was amazing on many fronts. Gold rallied all day, even while stocks retreated and the dollar rebounded. It finished the session up $33 or so. Recall the last time we had such a move was in January, after the FOMC minutes. That day, the total OI for gold rose by 7500 contracts. The next day, gold rose another $26 but total OI contracted by 1,300 as freaked out shorts covered positions and drove price higher.

Are you sitting down? Yesterday, during a similar $33 move, total OI in gold rose by nearly 17,000 contracts! And get this, it was almost entirely in the April contract which expires in just 5 weeks!! To me, this has to be the reason for the sudden pop in gold this afternoon. Someone saw those numbers and did a panic short-covering. We'll know more tomorrow when we get the OI numbers basis today's close. Regardless, this is a HUGE, one-day expansion in OI and it is EXACTLY the kind of FUNDAMENTAL demand that will be necessary to break through 1800 and drive to new all-time highs. HUGE.

Silver is really interesting, too. The total OI also rose yesterday. On a day when price rose by $1.22, total OI rose by 3,600 contracts to 110,583, the highest it's been in months! And here's the real kicker: The total OI for the March contract only fell by 100 contracts. This means that, with only five days to go until first notice day, some folks were actually buying the contract and/or adding to positions. This is amazing and it has to absolutely put the fear of God into The EE! We must watch OI very closely over the next few days. You can be almost 100% certain that a raid is coming as the EE must force as many folks as possible out of March and into May. If even 6,000 stand for delivery, that's 30,000,000 ounces and the same size as the PSLV secondary! This cannot be allowed. Again, we must watch OI very closely. If, by next week, 5,000 or less stand for delivery and price is still between 33 and 34 but OI is still 110,000+ because everyone rolled into May, the spring will be coiled for a big, big March and April.

So there you go. I had to get that info to you. Couldn't wait for morning. Get ready. Tomorrow may be crazy.

Today has begun crazy all right. Both metals popped right at the Comex open and silver was finally able to smash through the hard cap at $34.40. It has, so far, traded all the way to $35 where it was stopped cold.

I've read some comments looking for a greater explanation of the information above. Frankly, it can get so convoluted and detailed that it would be much easier to explain verbally (again, thus the need for webinars) but I'll give it a try anyway. First of all, on a big UP day like Monday was for gold, surging OI shows a rush of new money flowing into the pit. Certainly there were some new shorts added to the mix as well but those contracts are added on a "down tick" and gold was up $33, so we can assume that much of the new OI is new longs. And there clearly wasn't much short-covering, either, otherwise OI wouldn't have risen as much as it did. Nope, the 17,000 surge in OI is a clear indication of significant, new interest in paper gold buying on the Comex and really comes as a bit of a surprise. Fortunately, this all occurred on a Tuesday and, as you know, Tuesdays are the cutoff days for CoT surveys. So, this Friday's CoT should help provide some answers.

Speaking of the CoT, here's a comment I made late Friday discussing last week's report:

Submitted by Turd Ferguson on February 17, 2012 - 3:15pm.
MODERATOR

At first glance...

Pretty good news for gold. Not so much for silver.

Cartel net short in gold decreased by about 11,600 contracts while spec longs fell by 7300 or 3.5%.

In silver, EE net short grew by about 1900 while spec longs also grew by about 2%.

Conclusion: The Cartel might be preparing for 1750 to fall as the Greek/EU situation gets more tenuous. The silver CoT is exactly what you would have thought considering the ongoing battle between 33 and 34.

You have to imagine that The Cartel net short in gold has decreased dramatically again this week. After we win The Battle Royale at $1800, I expect gold to rapidly surge back to the old all-time highs of $1900+.

The silver OI expansion is interesting, too, but for different reasons. Once again, the C/C/C has to be deathly fearful of the March delivery. Remember what "first notice day" means. In a "delivery" month like March, the contract trades with regular margin requirements until first notice day, which, for the March12 contract, is next Wednesday the 29th. At the Comex close on the 29th, anyone still holding a March12 contract has to "prove" their intent to take delivery of 5000 ounces of silver by showing in their account a 100% margin balance. This is a kind of "put up or shut up" day. You either intend to take delivery or you don't. You either have the funds to do so or you don't. Typically, by the close of first notice day, we'll only have 2000-3000 contracts standing for delivery, the rest of the "traders" having sold their March contracts and "rolled" into May or July. The big fear for the C/C/C (that is often overblown by me and others) is that one day a determined group of investors will not roll and, instead, stand for delivery.

Here's where it gets interesting. December11 (a delivery month) saw a very small number of contracts standing for delivery. January, however, was not a delivery month. The only way anyone could take delivery in January was to buy an option and exercise it. Same for February. And yet, January well exceeded December in deliveries and February may exceed January. This is very strange and seems to indicate an unwillingness to play by the traditional "rules" and only take delivery during the delivery months. So now we've got over 29,000 March12 contracts still in play as of Tuesday night and were are only 6 trading days left before first notice day. Most of these longs will still choose to roll into May or July but...how many? And will the EE feel the need to coerce them into rolling by smashing price? (After all, why would you want to take delivery if price is dropping? That strategy sure worked in December.) Those are the questions.

So, now, onto today and the current charts. After gold surged $25 late yesterday and finally broke through 1765, silver stagnated. However, silver was strong overnight and then popped on the Comex open. It is now above $34.40 and has even traded to $35 for a brief moment. The question, of course, is what happens next?

Well, first of all, I find highly unlikely that, after a four-week trading range, the metals won't fall back for a test of what-should-now-be support. This means the silver will fall back to 34.40 or lower and gold will fall back to 1765. IF those levels then hold as support, the metals will spring higher and begin The Battle Royale. This is likely what will happen with gold where demand and fundamentals are so strong that all dips should and will be bought.

Silver, on the other hand, might still be subject to a brief but sharp correction for the reasons mentioned above. Let me state this clearly : IT DOESN'T HAVE TO. THE FUNDAMENTAL CASE FOR SILVER IS EXTRAORDINARILY STRONG AND I STILL EXPECT MUCH HIGHER PRICES. HOWEVER YOU MUST CONSIDER THESE THREE ITEMS:

  1. The EE net short position has consistently grown over the past 3 weeks.
  2. Open interest is surging and the EE must drive people out of March12 and into May12.
  3. One-month silver lease rates have again fallen to -0.40% today. A drop below -0.40% has foreshadowed the last two silver selloffs.

Again, these three items, taken independently, do not signal impending EE action. Taken collectively, however...

Just be cautious with silver here. Your upside is limited anyway. Once silver breaks through $36 it's off to the races. Why not wait until then to buy? I am.

I could keep going but, since I've been at this for about two hours already, I'd better get it posted. There's plenty of other stuff going on today so look for another thread later. Until then, Turd out. TF

p.s. Someone was speculating earlier about my age. I'm 46. Ugh. Sucks to even type that. Importantly, however, I don't feel 46 most days. Kind of think only 35 or so, except in my shoulder, and my lower back and my left knee. My neck sometimes hurts, too, and I have to wear reading glasses now. All in all, it's definitely getting more difficult to convince myself that I'm not 46. Ugh.

About the Author

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  218 Comments

charliebravo
Feb 23, 2012 - 10:58am

First

First. Not...

Marblesonac
Feb 23, 2012 - 11:04am

Turd

Turd called it 3 months ago when he first made a correlation between negative lease rates and a beatdown.

At that time it was primarily the 3 month lease rates that went negative bigtime.

Turd said he thought we would get a rise in silver in 3 months as the borrowers (short sellers) had to cover.

Looks like they had to cover right on time. Well down Turd!!!

boatman
Feb 23, 2012 - 11:05am

thurd....ooops....FIFTH of rum please

so EU LTRO flows n greek bailout n bank of england ups QE and china comes off some reserve basis points and PMs go up.

makes sense to me.

but then, i lean to the macro econ view, tho TA is a good 20-40% depending....then there is the EE/cartel factor [overcome for now by macro econ-----which will be perminent someday soon]

Antrobus
Feb 23, 2012 - 11:05am

feedback

Hi Turd

I don't think your followers expect you to be an investo-nanny providing them warm and profitable trades every night before bedtime - but instead to provide leadership in a forum where adults can discuss and learn from each other.

The major benefit you supply is a place where adults can discuss precious metals and economic issues. You do this by having a few bouncers at the door to keep the idiots out. A major problem with idiots is that they don't know they're idiots and so they complain and nurse their hurt feelings over at Zero Hedge.

Just compare TF with Zero Hedge - good articles at ZH but the comments are useless and best left unread - might as well try to get information out of the crackling of thorns under a pot.

Keep up the good work maintaining our island of sanity.

Groaner
Feb 23, 2012 - 11:05am

Turd: nice work, good common sense

I think the moves have fooled a lot of people..

There is trouble brewing in the cartel scum bags for sure..

I would love to see a pull back to load up.

murphy
Feb 23, 2012 - 11:05am

not the last post on the thread

Is it me or does it seem that there are many more first timers, second posters and lurkers coming out of the woodwork? I think that it is a sign of more and more people coming into the light. ALL those here have already seen it, whether a poster or not.

I think another poster recently over heard a conversation of some of his students about saving in metals and prepping food. Everyday that goes by thousands of more people are getting more enlightened from reading sites like these and ZH. As well as the other hundreds of informational sites on the web.

I agree with Vamoose that "they" have regulated the rise in gold out of reach of the common man. How will they do this with silver being so much more less expensive? After the rise to $50 to $70 per ounce physical and paper will disconnect, not unlike in 2008. As I recall, when silver was $11 the only metal you could buy for a reasonable premium was 90%. Eagles or bullion were a $4 premium if you could get them. My LCS in all good conscience, would not let me buy for that kind of premium.

That's my opinion and I'm sticking to it. It wouldn't surprise me if I caught the last post on this thread as well. Probably what my opinions worth anyhow.

Groaner
Feb 23, 2012 - 11:07am

The metal stocks are not really confirming this move up

You would think they would be up a lot more..

balz
Feb 23, 2012 - 11:07am

I like this site how it is

I like this site how it is right now.

I always say: if it is not broken, no need to fix it.

If you enjoy what you do, and if people enjoy what you do as well, I don't see why you would need to change it.

Anyway, I like this blog. I like it how it is. Thanks for making it possible.

Dr G
Feb 23, 2012 - 11:08am

1

1st. Again. Silver bitchez.

My last comment from the previous thread: I think it should be clarified that lease rates have a correlation to raids but are NOT a causation. Looking at the charts there are plenty of times where lease rates have been negative and the metals have moved higher. I'm not disagreeing with Turd, only saying that lease rates are one of MANY factors. He acknowledges that in this post. It is true that the stars are aligning for a nice raid.

Turd, 46 is young! You are a stud! What you say about limited upside is true. Maybe we will get a raid and get to stack some more cheap(er) silver before $36?

I'm ready to pay for this wonderful analysis. Get that subscription up and running so you can make some coin.

Here is my favorite thing to post:

cpnscarlet
Feb 23, 2012 - 11:10am

Happy about Confiscation!

https://www.zerohedge.com/news/projected-piigs-pillage-32335-tons-gold-be-confiscated-insolvent-european-banks

I don't know about you, but this ZH article should be the best news you've heard for many months. It's everything you want to hear - gold IS the ultimate extinguisher of debt and the EE/Cartel/TPTB are admitting it with this move. This is true and ultimate vindication for gold bugs and all fans of Austrian economics. It also reinforces the belief in the Exeter Pyramid scheme of value motion -

This is a great report, just as long as you don't think about all the terrible immorality of the whole situation. It is great to be confirmed in a strongly held (but very lonely) belief.

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