Posted: May 04 2011 By: Eric King Post Edited: May 4, 2011 at 10:04 pm

Filed under: King World News

Dear CIGAs,

Dan Norcini warned over the weekend on the KWN Weekly Metals Wrap that there was, “Potential for a top”, “Negative divergences”, “A great deal of distribution”, “Very dangerous market for people to trade”, “Undercapitalized speculators, they are going to learn they can be separated very quickly from their money.” Those were just a few of the red flag warnings for traders and investors from Dan Norcini over the weekend regarding the silver market that proved to be deadly accurate.

When asked what he is looking at right now in silver Norcini replied, “I want to address the silver backwardation issue. Many investors and traders feel that silver should not be dropping in price because of the backwardation structure. They point to this fact as proof that silver is in short supply and demand is phenomenal.

That may be entirely true, I don’t know, but the fact is that when we are dealing with the Comex silver market we are dealing with a paper market. Keep in mind that hedge funds that trade the paper markets do not care about fundamentals. They are pure technicians who rely solely on their computer trading algorithms to make trading decisions. These algorithms are utterly indifferent to the realities in the physical market.

The bottom line is once these algorithms move into a sell mode, the hedge funds will unload until they’ve exhausted their selling, regardless of the physical market structure. Meaning the paper market does not care about the physical market.