Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
Will Biden’s Neo-Populist Economic Doctrine Support Gold? - 25th Sep 21
Markets Deflationary Winds Howling - 25th Sep 21
Crude Oil Price Piercing the Sky: Where Will We See the Black Gold by Xmas? - 25th Sep 21
Cryptocurrency policy choices and consequences - 25th Sep 21
The Next Emma Raducanu UK Tennis Star Pleasing the Crowds at Millhouses Park Sheffield - 25th Sep 21
Stock Market Rescued by the Fed Again? - 24th Sep 21
Are Amazon Best Cheap Memory Foam Mattresses Any good? Bedzonline £69 4ft Small Double ECO Example - 24th Sep 21
Evergrande not a Minsky Moment - 24th Sep 21
UK Energy Firms Scamming Customers Out of Their Best Fixed Rate Gas Tariffs - 23rd Sep 21
Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Should School Children be Jabbed with Pfizer Covid-19 Vaccine To Foster Herd Immunity? - UK - 23rd Sep 21
HOW TO SAVE MONEY ON CAR INSURANCE - 23rd Sep 21
Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
Trading Crude Oil ETFs in Foreign Currencies: What to Focus On - 22nd Sep 21
URGENT - Crypto-trader event - 'Bitcoin... back to $65,000?' - 22nd Sep 21
Stock Market Time to Buy the Dip? - 22nd Sep 21
US Dollar Bears Are Fresh Out of Honey Pots - 22nd Sep 21
MetaTrader 5 Features Every Trader Should Know - 22nd Sep 21
Evergrande China's Lehman's Moment, Tip of the Ice Berg in Financial Crisis 2.0 - 21st Sep 21
The Fed Is Playing The Biggest Game Of Chicken In History - 21st Sep 21
Focus on Stock Market Short-term Cycle - 21st Sep 21
Lands End Cornwall In VR360 - UK Holidays, Staycations - 21st Sep 21
Stock Market FOMO Hits September CRASH Brick Wall - Dow Trend Forecast 2021 Review - 20th Sep 21
Two Huge, Overlooked Drains on Global Silver Supplies - 20th Sep 21
Gold gets hammered but Copper fails to seize the moment - 20th Sep 21
New arms race and nuclear risks could spell End to the Asian Century - 20th Sep 21
Stock Market FOMO Hits September Brick Wall - Dow Trend Forecast 2021 Review - 19th Sep 21
Dow Forecasting Neural Nets, Crossing the Rubicon With Three High Risk Chinese Tech Stocks - 18th Sep 21
If Post-1971 Monetary System Is Bad, Why Isn’t Gold Higher? - 18th Sep 21
Stock Market Shaking Off the Taper Blues - 18th Sep 21
So... This Happened! One Crypto Goes From "Little-Known" -to- "Top 10" in 6 Weeks - 18th Sep 21
Why a Financial Markets "Panic" May Be Just Around the Corner - 18th Sep 21
An Update on the End of College… and a New Way to Profit - 16th Sep 21
What Kind of Support and Services Can Your Accountant Provide? Your Main Questions Answered - 16th Sep 21
Consistent performance makes waste a good place to buy stocks - 16th Sep 21
Dow Stock Market Trend Forecasting Neural Nets Pattern Recognition - 15th Sep 21
Eurozone Impact on Gold: The ECB and the Phantom Taper - 15th Sep 21
Fed To Taper into Weakening Economy - 15th Sep 21
Gold Miners: Last of the Summer Wine - 15th Sep 21
How does product development affect a company’s market value? - 15th Sep 21
Types of Investment Property to Become Familiar with - 15th Sep 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

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

© 2005-2019 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