ESL, in addition to the lack of backwardation on silver futures that you reference, there has been a significant reduction in the number of commercial shorts while the funds concurrently increased their long positions. As Dan Norcini details below, this is the first time this has happened and may be the start of a commercial failure. We will have to watch this closely to see how it unfolds but the backwardation and divergence between commercial shorts and long funds may be signaling an upheaval at the COMEX.

I was also fortunate enough to attend Jim Sinclair's CIGA's meeting yesterday afternoon and all I can say is this man is a true visionary. If he is right which his past record indicates a very high probability of, then the massive short position on the juniors is about to experience a come to Jesus moment since the ratio spread manifested by OTC derivatives cannot be practically unwound and would be the equivalent to "backing up a dump truck to a table spoon".

He said that the black boxes are beginning to turn their postions on juniors from short to long, thus the increase in bid lots that we have been noticing over the past week or so. He expects the long position taken on the majors to recede somewhat while the juniors begin to "pop like popcorn".

Here is Dan Norcini's latest on silver....

The following charts detail the Commitment of Traders report through Tuesday of this week. I have included a chart of silver since there is a development in there that bears commenting upon. Please refer to that chart where I have included some of the following comments and marked the regions on the chart demonstrating what is taking place:

“Notice that the commercial short category sharply reduced the number of outright short positions they have been carrying (-9,297). This occurred from Tuesday of last week through Tuesday of this week. Over that time frame, the price of silver rallied $1.22. If you look at the chart very carefully, you will observe that this is the first time this has occurred in which the funds HAVE NOT been reducing their net long position. In other words, this appears to be the beginnings of a commercial signal failure. Normally the commercial perma-shorts in silver have used fund long liquidation to cover their shorts as the market moved lower. Not this time - they are buying on the way up!”

Also, while I did not note this on the chart, it is also noteworthy that someone had to obviously take the other side of that trade and sell silver futures. We might normally expect to see some of that selling occurring among the fund longs who could use some of that forced buying to book a few profits and sweep some of their paper earnings off the table to realize them. Amazingly enough, this has not been the case. The funds continue to buy. Guess who is doing the selling? The SMALL SPECS! Apparently, some of the public is trying to pick a top in the silver market. They have built up the largest OUTRIGHT SHORT POSITION IN TWO YEARS! Talk about a bullish signal. The most undercapitalized traders on the planet are adding new silver shorts as the market breaks into a 28 year high. No wonder open interest continued to shrink on Wednesday and Thursday this week. I would venture that a large portion of the brand new shorts by the small specs, which are deeply under water, are also coming off as the market stops them out. Forced buying by the commercials as they cover a goodly portion of their outright shorts and buy stops being set off among the public are powering this market higher as the funds squeeze them out.

This is going to be something worth watching next week to see if it continues or if things take a bit of a breather. Remember, it is a new calendar month on Monday and that often means brand new allocations of fund money to the markets. If that occurs, the silver shorts are in serious, serious trouble as the longs will show them not one ounce of mercy. Blood in the water draws sharks and the silver shorts are not only bleeding, they are hemorrhaging massively.

Stay tuned for this one!