On The Lookout, Part II

439
Wed, Jun 27, 2012 - 10:31am

When you eat, breathe and sleep your work, sometimes inspiration strikes you at the most odd of hours. Last night, I'm tossing and turning, trying to relax when the following pattern came to mind.

First, let's review a few things to insure that we are all on the same page. In Comex silver futures, there are five "delivery" months. These are the contracts that are the most actively traded because they are the contracts with the most volume and open interest (liquidity). These five contracts are considered "delivery" contracts because they are the ones through which holders most often take actual physical delivery of metal. Yes, the other months do see some delivery action but it is the months of March, May, July, September and December where the bulk of the physical settlement takes place.

If one desires to take delivery through The Comex, one must first buy a futures contract. Let's say you wanted your 5000 ounces of silver in March so you purchase a March12 contract. When you buy the contract, you only have to put up part of the money, this is your initial margin requirement. However, once the contract expires, The Comex will ask you to put up all of the money needed to purchase the silver. The date where "100% margin" is required is known as First Notice Day. It's a sort of put-up-or-shut-up type of thing. By late February, trading in the March contract will have ceased so The Comex wants you out of the contract. Only those with intent to take delivery are allowed to continue to hold it and all of them must have 100% of the cost of delivery in their respective brokerage accounts by First Notice Day.

It is on First Notice Day that we get some idea of how many contracts are standing for delivery. Recently, this number has been coming in anywhere between 2,000 and 4,000 contracts, or roughly 10,000,000 to 20,000,000 ounces of silver. OK, are you with me so far??

Here's the rather alarming trend that hit me late last night:

For the December11 contract, first notice day was November 30, 2011. Closing price that day of the March12 contract was 32.87. BY 12/29/11, the MARCH12 TRADED AS LOW AS 26.50. DOWN 19.38%.

For the March12 contract, first notice day was February 29, 2012. Closing price that day of the May12 contract was 34.70. (It was even higher at 37.26 on 2/28.) BY 3/22/12, THE MAY12 TRADED AS LOW AS 31.18. DOWN 16.32%.

For the May12 contract, first notice day was April 30, 2012. Closing price that day of the July12 contract was 31.01. BY 5/16/12, THE JULY12 TRADED AS LOW AS 26.73. DOWN 13.8%.

Graphically, it looks like this:

Uh-oh. Maybe now would be an excellent time to go back and read this post from last Saturday:

https://www.tfmetalsreport.com/blog/3940/lookout

As you know, yesterday was option expiration and the final trading day for the July12 contract. The action now shifts to the September12 contract. First Notice Day for the July12 contract is this Friday, the 29th. If things get a little dicey next week and into mid-July, don't say you weren't warned. That said, I firmly believe everything I put into the Saturday post referenced above. IF a washout through $26 materializes, please do not panic. Recognize it for what it is: The Closing Acts of The Silver Cartel. Once they are net flat or even net long, things are going to get very exciting around here.

Be patient. Think clearly. Be rational. Prepare accordingly.

TF

p.s. My intention is to update TurdTalksMetals with a new podcast, every day by 4:00 EDT. Today, there will likely be a bit of a delay, however. Thanks for your patience and thanks to all who are supporting the new venture.

About the Author

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turd [at] tfmetalsreport [dot] com ()

  439 Comments

Number 47
Jun 27, 2012 - 5:07pm

@john galt

I just read your post and I'm afraid you are wrong.

Those Iranians would be using Samsungs, not Ipads.

John GaltNumber 47
Jun 27, 2012 - 5:20pm

@ Number 47 re: samsung

Touche', my friend.

I guess that blows my conspiracy theory right out of the water.

LOL

Dudley Do-Right
Jun 27, 2012 - 5:36pm

Funny Because True?

From (Casey Research's) Jeff Clark piece today on gold stocks:

"So what's going to move these darn stocks? Will their day ever come? Could our research – gulp – be wrong? Jokes have even started circulating…

  • What's the difference between a seagull and a gold stock investor? The seagull can still make a deposit on a Mercedes.
  • Gold equities may be bad, but I slept like a baby last night. I woke up every hour and cried." - https://news.goldseek.com/GoldSeek/1340846603.php
Bluefin771
Jun 27, 2012 - 5:42pm

First Notice Day Trends

From Turd's post today: For the December11 contract, first notice day was November 30, 2011. Closing price that day of the March12 contract was 32.87. BY 12/29/11, the MARCH12 TRADED AS LOW AS 26.50. DOWN 19.38%. For the March12 contract, first notice day was February 29, 2012. Closing price that day of the May12 contract was 34.70. (It was even higher at 37.26 on 2/28.) BY 3/22/12, THE MAY12 TRADED AS LOW AS 31.18. DOWN 16.32%. For the May12 contract, first notice day was April 30, 2012. Closing price that day of the July12 contract was 31.01. BY 5/16/12, THE JULY12 TRADED AS LOW AS 26.73. DOWN 13.8%. One of the things Turd does is try to find what trend the EE is running. And the EE, if one thinks about it, encourages trends. Trends build CONfidence, which can be harvested when one has access to looking at all the trade positions in place (the entire electronic system is visible with the right access codes) and the unlimited firepower of the Fed bankrolling your positions. The trend currently being analyzed is occurring in a bear market period. A year ago we were in a bull market period. Perhaps someone with greater graphics ability than mine might do Turd's analysis with the May, July and September 2011 contracts to see what it looks like with the trend being up (like Turd is forecasting for part of this summer)? From memory I thought there was always a beat down as expiration approached but it was short and swift, not enduring like the current bear phase. Might be a visual clue when the trend has changed, perhaps for a 2 or 3 contract period run? That said, there might be a significant factor that makes the comparison periods less than useful. That factor would be Jim Willie's contention that the East is driving the price down to force the delivery of real metal from real banks' vaults. This pressuring process might have ended or might still be going on. Future historians may write about this, Bloomberg is unlikely to have a real time article on it.

Magpie
Jun 27, 2012 - 5:44pm

Off topic

the USAF Academy Chapel:

StoxxmanThe Green Manalishi
Jun 27, 2012 - 5:46pm

Re: Ron Paul Audit

THIS is freakin beautiful and reason numero uno why this site kicks some serious arse.

MANY thanks. We got some major sharp pencils here and that's bloody awesome.

https://pennystockjournal.blogspot.ca/

Number 47
Jun 27, 2012 - 5:56pm

@NW view

Interesting video, I've seen similar studies using smoke in a room and the test subject quite happy to sit and watch. Crazy.

I guess that's why I'm seen as non-conformist. I'm the guy who yells fire or asks 'are you guys all blind?'

I'm guessing 90% of folks on this site are the same.

That's one of the reasons I'm comfortable investing in PMs.

When everyone you know says you take life too seriously., you're doing it right. IMHO

IstackNumber 47
Jun 27, 2012 - 6:04pm

Yep

collecting PM is like mountain hiking. You run into a much higher percentage of good people

Dr GSIlverbee
Jun 27, 2012 - 6:14pm

I read many on here looking

I read many on here looking to `BTFD' and `waiting for a smack down to $22' etc. I don't understand this mentality. If you truly believe in the value of the PMs then you should want to see its price reflected accurately. What would you rather have all the PMs you have nowat $5000 G and $500 S and buy all the over inflated assets you want, or keep asking for a BM's special and have an opportunity to back up the truck (assuming there is some) but at the cost of Armageddon.

Personally and to be honest I am `all in' I would rather have my highish price now. I want to use fiat to buy assets not PMs. I see buying with PMs as a system breakdown scenario.

So please don't wait for the dip, buy PHYS now and it will be a self fulfilling prophecy.

An accurately reflected PM price means the $hit has hit the fan and the world is falling apart as we know it. I do NOT want that for myself or my family or my friends or loved ones. No way no how. I believe it is inevitable, however, hence I stack. That doesn't mean I want to usher it in at a quicker pace. You won't see $5000 gold until we are screwed. It will terrible and miserable and utter disaster for most everybody we know. $5000 gold means our system is finished. It means 50% unemployment and no food in the market. It means your neighbors start getting hungry and there isn't much they won't do to put a meal on the table for their children. It gets scary.

No, I don't want that. Metals are a hedge for me. A future protection. I don't stack so the price can go up and then I can buy other assets. I stack so that I can have some protection on the other side.

Zoltan
Jun 27, 2012 - 6:16pm

Jim Willie's Latest

I know many here are fans.

https://www.marketoracle.co.uk/Article35356.html

Good read. Thanks again Turd for everything you do.

Z

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