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Silver Parabolic Rally Due to Short Covering Not Speculative Buying

Commodities / Gold and Silver 2011 May 19, 2011 - 03:13 PM GMT

By: Jordan_Roy_Byrne

Commodities

Best Financial Markets Analysis ArticleMost mainstream pundits and reporters have assumed that it was speculative buying that caused Silver to go parabolic. After all, its always the dumb money or the public that gets in at the very end. However, in futures markets, parabolic moves are often the result of short squeezes. This is exactly what happened in Silver.


Credit the great work of sentimentrader.com, which is a fantastic service. The chart is below.

As you can see, both open interest and the speculative long position had been trending down. Both continued to decline during the parabolic move. When open interest falls but price rises, its a short squeeze. The same thing happened with Cotton just a few months earlier. I don’t place much time or emphasis on speculating about market manipulation or intervention but the COT tells us that the commercial traders (which includes JP Morgan) were covering. Typically, the commercials buy into weakness and sell/short into strength.

To find out more about how we manage risk and volatility and what stocks we are following, then consider a free 14-day trial to our premium service.

Good Luck!

Jordan Roy-Byrne, CMT

Trendsman@Trendsman.com

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Trendsman” is an affiliate member of the Market Technicians Association (MTA) and is enrolled in their CMT Program, which certifies professionals in the field of technical analysis. He will be taking the final exam in Spring 07. Trendsman focuses on technical analysis but analyzes fundamentals and investor psychology in tandem with the charts. He credits his success to an immense love of the markets and an insatiable thirst for knowledge and profits.


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