Best of the Week
Most Popular
1.Spain Ignores Scotland Lesson as Catalan Independence Referendum Could Spark Civil War - Nadeem_Walayat
2.Used Car Buying From UK Dealer Top Tips, CarMotion.co.uk Real Customer Experience - N_Walayat
3.Spanish New Civil War Begins as Madrid Regime Storm Troopers Quell Catalan Independence Rebellion - Nadeem_Walayat
4.Virgin Media Broadband Down, Catastrophic UK Wide Failure! - Nadeem_Walayat
5.Are the US Markets setting up for an Early October Surprise? - Chris_Vermeulen
6.The Pension Storm Is Coming To Europe—It May Be The End Of Europe As We Know It -John_Mauldin
7.Stock Market Crash 2018; Will it Prove to be Another Buying Opportunity - Sol_Palha
8.The Profoundly Personal Impact Of The National Debt On Our Retirements - Dan_Amerman
9.Stock Market as Good as it Gets; Like 2000 With a Twist -Gary_Tanashian
10.1987 Stock Market Crash 30th Anniversary Greatest Investing Lesson Learned - Nadeem_Walayat
Last 7 days
Bitcoin Hits $6,000, $100 Billion Market Cap As Helicopter Ben and Jamie Demon Warn The End Is Near! - 22nd Oct 17
Time for Caution in Gold Miners - 22nd Oct 17
“Great Rotation” Ahead; Will it Be Inflationary or Deflationary? - 21st Oct 17
The Trigger for Volatility, Rates and the Next Crisis - 21st Oct 17
Perks to Consider an Agent for Auto Insurance - 21st Oct 17
Emerging Megatrends Hurting Consumers - 21st Oct 17
A Catalyst of the Stock Market Bubble Bust - 21st Oct 17
Silver Stocks Comatose - 21st Oct 17
Stock Investors Ignore What May Be The Biggest Policy Error In History - 20th Oct 17
Gold Up 74% Since Last Stock Market Peak 10 Years Ago - 20th Oct 17
Labour Sheffield City Council Employs Army of Spy's to Track Down Tree Campaigners / Felling's Watchers - 20th Oct 17
Stock Market Calm Before The Storm - 20th Oct 17
GOLD Price Creates Bullish Higher Low - 20th Oct 17
Here’s the US’s Biggest Vulnerability in NAFTA Negotiations - 20th Oct 17
The Greatest Investing Lesson Learned from the 1987 Stock Market Crash - 20th Oct 17
Stock Market Time to Go All-in. Short, That Is - 19th Oct 17
How Gold Bullion Protects From Conflict And War - 19th Oct 17
Stock Market Super Cycle Wave C May Have Started - 19th Oct 17
Negative Expectations, Will the Stock Market Correct? - 19th Oct 17
Knowing the Factors Affect your Car Insurance Premium - 19th Oct 17
Getting Your Feet Wet In Crypto Currencies - 19th Oct 17
10 Years Ago Today a Stocks Bear Market Started - 19th Oct 17
1987 Stock Market Crash 30th Anniversary Greatest Investing Lesson Learned - 19th Oct 17
Virgin Media Broadband Down, Catastrophic UK Wide Failure! - 19th Oct 17
The Passive Investing Bubble May Trigger A Massive Exodus from Stocks - 18th Oct 17
Gold Is In A Dangerous Spot - 18th Oct 17
History Says Global Debt Levels Will Lead to Another Crisis - 18th Oct 17
Deflation Basics Series: The Quantity Theory of Money - 18th Oct 17
Attractive European Countries for Foreign Investors - 18th Oct 17
Financial Transcription Services – What investors should know about them - 18th Oct 17
Brexit UK Vulnerable As Gold Bar Exports Distort UK Trade Figures - 18th Oct 17
Surge in UK Race Hate Crimes, Micro-Racism, Sheffield, Millhouses Park, Black on Asian - 18th Oct 17
Comfortably Numb: Surviving the Assault on Silver - 17th Oct 17
Are Amey Street Tree Felling's Devaluing Sheffield House Prices? - 17th Oct 17
12 Real-Life Techniques That Will Make You a Better Trader Now - 17th Oct 17
Warren Buffett Predicting Dow One Million - Being Bold Or Overly Cautious? - 17th Oct 17
Globalization is Poverty - 17th Oct 17
Boomers Are Not Saving Enough for Retirement, Neither Is the Government - 16th Oct 17
Stock Market Trading Dow Theory - 16th Oct 17
Stocks Slightly Higher as They Set New Record Highs - 16th Oct 17
Why is Big Data is so Important for Casino Player Acquisition and Retention - 16th Oct 17
How Investors Can Play The Bitcoin Boom - 16th Oct 17
Who Will Be the Next Fed Chief - And Why It Matters  - 16th Oct 17
Stock Market Only Minor Top Ahead - 16th Oct 17
Precious Metals Sector is on Major Buy Signal - 16th Oct 17
Really Bad Ideas - The Fed Should Have And Defend An Inflation Target - 16th Oct 17
The Bullish Chartology for Gold - 15th Oct 17
Wikileaks Mocking US Government Over Bitcoin Shows Why There Is No Stopping Bitcoin - 15th Oct 17
How to Wipe Out Puerto Rico's Debt Without Hurting Bondholders - 15th Oct 17
Gold And Silver – Think Prices Are Manipulated? Look In The Mirror! - 15th Oct 17

Market Oracle FREE Newsletter

3 Videos + 8 Charts = Opportunities You Need to See - Free

Is The Silver Trade Getting Crowded?

Commodities / Gold and Silver 2015 May 25, 2015 - 03:17 PM GMT

By: Dan_Norcini

Commodities

That is the question I am asking myself today after having some time to analyze its Commitments of Traders report.

Here is the Daily Silver chart:


Silver Daily Chart

It has had a nice run higher off the April low near 15.50 after it managed to clear the $16.75 region with conviction last week.

It then proceeded to forthwith take out the level noted, "Initial Resistance" over the next two sessions whereupon it ran into selling at the "Secondary Resistance" zone near 17.85-17.75.

It then fell sharply this week breaching the "initial resistance" level as the US Dollar begin strengthening once more.

US Dollar Daily Chart

Thus far it has found support near the 17.00 level.

Here is what concerns me however. Both of these next two charts are derived from the Commitments of Traders data.

The first is the NET POSITIONS of all the players involved.

Silver COT

The hedge fund category is approaching their largest net long position of the last six years. That is of a great enough concern in and of itself but this next chart is what really got me!

Hedge Funds Outright Positions in Silver

The number of OUTRIGHT LONG positions held by the Hedge Fund category is the largest I have on record. It is so large, it actually exceeds the number this category was holding back when silver was trading closer to $50!

If you look a little closer at the last chart, you can see that the all-time high in long positions that the hedgies held was made back in July of last year ( 2014). At that time, silver was trading near the $22 level.

Here we are some 10 months later and while the hedge funds are holding a record for OUTRIGHT LONG positions, the price of silver is some $5 lower. Obviously, some very concerted selling has been occurring to absorb that much buying by the large funds. Where is that coming from?

Going back to the first of these two COT charts, the one with the NET POSITIONS, take a look at that SWAP DEALER category.

Silver COT

I have written about this group before when it comes to the silver market as their track record for catching turns in this market happens to be very good.

Notice how they INVERSELY MIRROR what the hedge funds are doing. If the hedgies are buying, they are selling. If the hedgies are selling, they are buying. AT the moment, they are selling and are selling rather heavily, as they are a mere 1500 net contracts short of the all time net short position in silver.

What this tells me is that those holding longs in this market had best exercise some caution and not grow complacent.

You can see from looking at that daily chart just how sharp the fall in silver can be when these hedge funds get overextended in silver. Notice that in one single day, the upside gains of the previous three days, and then some, were erased.

It is important to keep in mind, as I have written many, many times before, just because a group of large speculative interests happen to build either a large long position or a large short position, does not necessarily mean one must immediately run for the hills if they happen to be on the same side of the market as that group. The Hedge funds have large assets at their disposal and their firepower, when once trained on any market is a formidable force. I would argue that they are the PRIMARY DRIVERS of our modern futures markets and that one does not become prosperous by willy-nilly taking the other side of their trades.

What I do argue however is that once this category of traders does build a very large position, one must be very careful to closely monitor technical price action and indicators for signs that they are going to exit that position especially if upside momentum begins to show signs of stalling out ( if they are long as they currently are in silver).

Based on what I am currently seeing on this chart silver will need to hold here near the $17 level to prevent a round of serious long liquidation. Any subsequent move lower needs to find buying support around the 16.75-16.65 zone or it will set in motion another round of long liquidation that would then have the potential to carry the market down towards $16.15-$16.00.

These moves in price may not sound like much to most buyers of the physical metal but from a commodity futures market perspective, we are talking about a 5,000 ounce contract with each $1.00 move the equivalent of $5,000 per contract. That is a lot of money for most smaller traders to risk in this market.

There are smaller sized silver futures markets available in which to trade but their liquidity can leave much to be desired at times. However, if one is willing to accept that, those minis are easier on the pocketbook in the event that a trader is wrong.

So where does silver currently stand as far as its short-term technical analysis goes?

Here is the daily chart again:

Silver Daily Chart

I have two different indicators I am using on this chart. the first is proprietary. The second or lower one is one which some of the readers might recall I first displayed on a cotton chart.

It is simply the ADX/DMI with the ADX stripped out using just the two Directional Movement Indicators (+DMI and -DMI) and their movements back and forth above and below each other. Their crossings can be used to generate buy and sell signals which I like to verify with some different indicators before acting on them.

When the DMI's cross and the market is bullish, the bar turns the lavender-like color. When the Directional movement lines register a bearish cross, the bars turn black.

Silver Daily Chart

As you can see, there are occasions when the middle indicator contradicts the signal coming from the DMI's. That is something that is up to the discretion of the trader whether to take the signal or not. For our purposes however, we are still in a bullish mode for silver and thus there has not yet been a sell signal generated although both indicators are showing some signs of a stall in upside momentum.

If the market cannot hold this week's low, it will more than likely generate a sell signal on both and then that very large long side exposure of the hedge funds will come into play.

If you are long therefore, just be careful and do not get careless. I have no idea whether or not this market will hold here. So much depends on what the US Dollar will do next week. If the Dollar moves higher, I do not think silver will hold. If the Dollar weakens again, silver should bounce from this $17 level and try again at the $17.40-$17.50 region.

Lastly, here is a combination chart showing the silver price overlaid with the USDX.

US Dollar and Silver Daily Chart

It is interesting to note that when the Dollar peaked in March, silver bottomed and began moving higher. The inverse relationship between the two is certainly not perfect but this past week, as the Dollar moved higher once more, silver retreated from its overhead resistance level. That is something that anyone who trades this metal must not ignore.

Dan Norcini

http://traderdan.com

Dan Norcini is a professional off-the-floor commodities trader bringing more than 25 years experience in the markets to provide a trader's insight and commentary on the day's price action. His editorial contributions and supporting technical analysis charts cover a broad range of tradable entities including the precious metals and foreign exchange markets as well as the broader commodity world including the grain and livestock markets. He is a frequent contributor to both Reuters and Dow Jones as a market analyst for the livestock sector and can be on occasion be found as a source in the Wall Street Journal's commodities section. Trader Dan has also been a regular contributor in the past at Jim Sinclair's JS Mineset and King News World as well as may other Precious Metals oriented websites.

Copyright © 2015 Dan Norcini - All Rights Reserved

All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise. The information on this site has been prepared without regard to any particular investor’s investment objectives, financial situation, and needs. Accordingly, investors should not act on any information on this site without obtaining specific advice from their financial advisor. Past performance is no guarantee of future results.

Dan Norcini Archive

© 2005-2017 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife