COT Latest,..

Bill,
It looks very much to me as if my favourite metal is warming up for a TRULY MONSTER MOVE!

Below is the latest graph from the Commitment of Traders data, outlining how the ‘Insiders’ (Commercials) are presently positioned.

I’ve been banging the drum on this analysis for quite a while and have been financially flogged for my efforts!

Throughout this Bull Cycle, a bottom in any correction has always seemingly coincided with the Commercial Short/Long Ratio dipping below 2. Always that is until this present correction, where the Ratio has been under the ‘2.0 Water Mark’ for over 3 straight months! Not only that but it has continued to fall and is now down to a staggering 1.34! In tandem with this the price of Hi-Ho has continued to fall also, contradicting my multi-month theme that a snap back rally is due any minute.

In simple terms the Commercials are now only circa 14,000 contracts net short, almost half the 30,000 that again has almost always coincided with multi-month lows.

So has this method of analysis broken down or is it just that in this present position within the cycle we need to adjust our sights a little?

I have full confidence it’s the latter, if for no other reason than in any Casino we all know the ‘House’ invariably wins in the end, and the owners of this ‘House’ have clearly been getting increasingly positioned for higher prices for some months now. Together with that ‘Jo Public on Main St’ is likely as proportionally net short in this game as he’s been for many years and given that it’s an equally well known fact that Jo almost always gets slaughtered to feed the City Pigs I guess his time in the abattoir is fast approaching!

So let’s have a look at my statistical COT graph again to see if we can fine tune the analysis a little further:

What comes to light? As well as the fact we are at record lows, the most obvious observation is that the overall trend for this ratio is down. The ‘Insiders’ are clearly finding it harder and harder to make good money from the short side of this trade and as such have increasingly moved themselves over to the long side of this ‘boat’ as this bull cycle has progressed.

Now let’s have a look at the Price of Silver over that period and define arguably 3 of the most suitable opportunities to have bought the metal in the last 7 years.

As one can see these buy opportunities coincide perfectly with the lows in the Commercial Short/Long Ratio,

In past analysis, I have simply defined that anytime the Ratio falls below 2 it has proven to be a great time to buy. However when doing this, I have not taken into account the quite obvious overall declining trend of this ratio. I recognise now that my assumptions were clearly too simplistic, as it is only reasonable to expect that as ‘The Insiders’ continually move towards the ‘longer end of the boat’, the ratio will continue to penetrate further to the downside during periods of correction.

Time to join the dots!

It may just be coincidence, but if one draws a line along the other previous lows in ratio, one finds it presently settling around 1.35 on the graph, coinciding almost perfectly with where the ratio stands today!

Is this calling a new corrective bottom in this cycle?

I think it is and I think the next 9-12 months could prove to be spectacular!

As well as the COT analysis above there are other signals overhanging the Silver Sector (outside of the quite obvious general fundamentals) that also point strongly to the fact we might be at the corrective lows here.

Note just how extremely overbought the Dow is against Silver at present on the MONTHLY chart at present. See how the RSI has been rubbing up against the 50 level, which has always coincided with a low in the Silver Price throughout this cycle.

And consider the fact that even though Silver has corrected from it’s run away highs of almost $50 earlier this year, the CME has chosen to keep margin requirements at an extra-ordinarily expensive $25,000 per contract. That’s supposed to in principle be protecting the potential for a $5 daily move which arguably we did see for a week or two during the summer, but volatility of that magnitude has long since dried up. Clearly the Exchange has chosen to keep the margins so ludicrously high for a reason, because these large holding costs are losing them big money from lack of participants as can be seen from the falling Open Interest these last 6 months. High Margin is clearly being used as a deterrent on the sector, which I can only assume is because supply of physical metal against contracts is very tight. However it seems there are now a number of players coming back into the playground, as Open Interest has started to creep back up in the last week or two even as we sit close to new price lows. With most of your over exposed speculators now shaken out from the tree, deeper pockets are clearly coming back onto the long side and will prove increasingly more difficult to unsaddle as the shorts push for sellers,

I think there’s a very big upside move rattling down the back of this mighty steed and I don’t think we’ve very long left to wait!

And Consider this, The next big upside move for Hi-Ho is likely to push it up through it’s 1980 high of $50, Once that 30 year dam is finally thwarted, the real upside fireworks should begin!

Here’s hoping,
Best,
Rich (Live from 'The Bridge of the Silver Rocket Ship')