Just a few things before we begin a stormy week.
First of all, this week's CoT was really, really interesting...at least in silver. Where gold is acting "normal", whereby the spec longs are selling and the Cartel shorts are covering, silver is an entirely different animal. If you missed my comments on Friday, here's a reprint:
Submitted by Turd Ferguson on October 26, 2012 - 3:05pm.
With price down nearly $40 on the reporting week, the CoT was predictable. The large and small specs dumped 11,ooo gross longs and The Cartel covered 11,000 gross shorts. The Cartel also added some longs so the net short position declined by almost 15,000. The Cartel net short ratio is now 2.75:1. For perspective, three weeks ago on 10/2, the net short ratio was 2.98:1.
Here's where it gets really interesting. For the week, price declined well over $1 and the total OI fell by just 762 contracts. JPM et al covered 2000 naked shorts and also sold 400 longs.
But check this out. The common theme in predicting another "collapse" in silver (and gold, too) was that the specs had overbought and were going to be chased out by an attacking Cartel. New spec short money would speed the collapse and allow the Cartel to cover. Even I subscribed to this a bit as I figured that the spec position was turning over as longs were sold and shorts were added. The data, though, doesn't bear this out!
10/2/12 Large Spec Long Large Spec Short Small Spec Long Small Spec Short
$35+ price 47,236 9,118 30066 10344
10/23/12 47,463 10344 27437 10074
Note that the Large Spec Long position is virtually unchanged! Price has fallen over $3 only because the Small Specs have sold 2,600 of their longs. By no coincidence, the Silver Cartel gross short position has, over the same time period, fallen from 93,628 to 91,285...a drop of 2,343.
Very important conclusion: The price of silver has fallen over 10% simply because a few small players decided to dump some longs. The Big Money...hedge funds, managed money, etc...has not budged. They are still core long and holding.
Now, as price begins to rebound, let's see what happens next. If I were Blythe, I'd be very frustrated and pissed off...and a bit nervous, too.
On the charts below, you can clearly see that we are forming out bottoms so I went back to the CoTs of January 2011 to look for clues and things we should be monitoring today. Though January 2011 saw the typical spec long liquidation and Cartel buying in both metals, the bottom materialized in late January when a short-covering bounce provided the spark. And from whom did the bounce originate? The large spec shorts. On the 1/25/11 CoT, the large specs in silver had a gross short position of 10,473. The very next week, that level fell to 7,203 for a reduction of over 10%! During and shortly after this "event", silver rallied from a low of $26.51 to $27.94 and the bottom was in. Will we see that type of action again this week or next??
Let's start with the Finviz hourly charts where both metals look like they have found bottoms.
Now, take a look at the daily charts. What I like here are the multiple days of full-range trading. Yes, the metals haven't yet broken UP and out of these ranges (bottoms) but they haven't broken down, either, and the onus is now on the shorts to sustain momentum by driving price ever lower. Failing momentum will eventually lead to a self-fulfilling cycle of covering shorts and higher highs off of these lows.
The 8-hour charts are insightful as they show the trendlines from the highs of early October. Note that silver is leading the way in breaking UP and through its trendline. Gold appears to be a day or two behind. Also note the deliberate manipulation on the gold chart. Gold was sold and smashed for three consecutive Friday/Sunday/Monday periods but, when they tried to start it again this past Friday, they were rebuffed. This is obviously a very good sign though they may try again overnight tonight and into tomorrow. If they do, I'm quite sure they'll fail as the support levels from last week look pretty solid.
And, speaking of support levels, you can clearly see them on these 2-hour charts. Not only support but you can also see our targets for breakout. Initially, those levels are $32.50 in silver and $1720 in gold.
OK, that's it for now. Trading kicks off in 100 minutes so be ready. Maybe the evacuations in NY for the next couple of days will cause the JPM metals desk to be undermonkeyed and a rally will result? We'll see...
10:15 am EDT UPDATE:
With "holiday" trading today and likely tomorrow, I would expect a quiet and rangebound trade. Maybe, since so much of the selling has been Comex-based over the past three weeks, we'll get a break and see a gradual rally in price but don't count on it. For now, support held at higher levels this morning after the usual 3:00 am NY time selldown. Let's see if this trend can continue. Hang on. Hunker down and stay safe. TF
10:00 am EDT TUESDAY UPDATE:
Just another quick update as, once again, the equity markets are closed and volume is extremely light in very thin conditions. Regardless, the basing trend spotted yesterday on the charts above is even more evident today. Let's look for resolution of this basing/consolidation pattern by mid to late week as things begin to get back to some kind of "normal".
I'll have a full, new post later today so please be sure to check back. TF