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Latest COT data released on Friday
shows an astounding ramp in Commercial short positions in silver that it
believed to be unprecedented, and given that silver is now critically
overbought after 14 up days in a row up till last Thursday, it is safe to assume
this means trouble.
On silver’s 6-month chart we can see its
robust advance of recent weeks and how it has arrived at a resistance level
in an extremely overbought state – critically overbought in the case of
its RSI indicator. Without looking at the COTs we would expect it to
consolidate or react back somewhat here before the advance resumes. When we
take into consideration that the Commercial’s short positions in silver
have exploded in just 2 weeks to levels exceeding those ahead of the March
peak, and also that gold has just stalled out at important trendline resistance, it becomes clear that there is
trouble brewing, and that it is probably imminent.
The latest COT chart shows the astounding and extraordinary explosion in
Commercial short positions over the past week or two, that
is believed to be unprecedented. What does it mean? – the Commercials
take the other side of the trade from the Large and Small Specs, and what
this shows is these latter groups have jumped off the fence all at once and
piled in. THIS IS NOT NORMAL AT THE START OF AN UPTREND. Early stages of a
sustainable uptrend are characterized by caution and reticence, which then
gradually eases as the uptrend progresses, which is why for this uptrend to
be sustainable, the COTs positions should be increasing steadily, not going
through the roof. What this reveals is there are a large group of traders who
have never been bearish on silver since 2011, and at the 1st sign of an
uptrend all pile in. They did this last March, when it also meant trouble,
although it was not so pronounced. Usually, only when this
group are pulverized and give up is the stage set for a genuine
sustainable major uptrend – so this massive ramping of positions is
viewed as very bearish indeed for the short to medium-term.
 
br> The long-term COT chart for
silver puts the position spike of the past 2 weeks into context. On this
chart we can see that, although this spike is dramatic, it has not taken
readings to historical limits. Nevertheless, it is extreme enough to call for
an imminent reaction.
Chart courtesy of www.sentimentrader.com
Public Opinion on silver is already at an extreme that calls for a
reversal…
Chart courtesy of www.sentimentrader.com
On the site we look at ways to protect from loss in the event of the sector
turning lower soon as expected, and also ways to capitalize on such a drop.
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