Thursday, July 5, 2012

Explosive upside potential for Silver

A bit of a short post ahead, but I see it more as a continuation of my last post:

Since this post we saw Silver continue to bounce out of it's near $26 low. It closed above the short term down trend resistance that I spoke about at $28 (and has been bouncing around just above that level during quiet July 4th trading, US market closed). Next resistance is at $32 and a solid breakout above this level should see Silver having a sustained rally.

Further to the charts (holding above strong support, oversold), sentiment (very bearish) and the fundamental drivers continuing (money printing, "debt can" kicking), I would strongly advise you consider the below video from Gold Gold Report (h/t BlackSheep on Silver Stackers) which looks at the latest COT (commitment of trader) report for Silver:

Cliff notes:

Commercial short positions as percent of total open interest at low levels not seen since 2001 when Silver was $4.

Swap Dealers at record net long position in Silver futures.

Managed Money short position in Silver at record high levels (potential for massive short covering).

Managed Money net position in Silver at around same level seen in the 2008 Silver crash.

Basically the COT data suggests that the market is setup and ready for an explosive upside rally, potentially as large as or if not greater than the rally from the lows seen in late 2008, as I covered in my previous post:
Within 4 months of the $9 low in October 2008, the price of Silver had rallied over 60% to almost $15. A price move like that today would take us back into the $40s and I wouldn't be surprised to see such a move over the coming months if the European situation has been stabilised.
With all this in mind, all we need is a trigger to set off the explosive upside potential for Silver. There are several events/announcements which could ignite the rally over the next two days. Two of them are tonight (Thursday night Australian time):
Traders were waiting for key monetary decisions from the European Central Bank (ECB) and Bank of England (BoE), expected today.
The ECB is expected to announce an interest rate cut while the BoE is expected to announce a STG50 billion ($A76.78 billion) stimulus package to boost recession-hit Britain. Herald Sun
Any action from Europe or UK which suggests that the money printing/easing will continue to kick the can will likely result in risk assets rallying (inclusive of Silver).

And further to this we will see jobs data (unemployment update for June) released Friday in the US (Friday night Australian time). It was just following this release in early June that Silver saw a strong rally to test $29.50 before falling back. A poor result from the jobs data could stoke further speculation that the Fed will announce further easing measures come the next FOMC meeting in August.

My short term trading history could be considered a mixed bag at best, but I have taken a position in "paper" Silver this morning ($28.15) via CFDs with a stop just under $26. I sure wouldn't suggest you follow me blindly into the trade, but I am just using this as an example of how confident I am that the bottom is in for Silver with the recent back test of support (now forming a triple bottom) and potential now for some exciting upside action.

I rarely take a short term position or even talk in this way about short term potential, however the opportunity to buy these price levels may not come around again in this bull market (just like we haven't seen a $9 price since 2008). However, if for some unforeseen reason Silver does drop below $26 the potential is still there for some significant downside to the next level of support. So take care!

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  1. Where can I follow LCNS data? I did a google but cant see much. Would be interesting to follow this on a chart. Im thinking of adding to my ETPMAG Aus silver etf, Im averaged to $31 currently, I might average it to $30 or so at current pricing.

    1. The information is gleaned from the COT reports e.g.

      So you would need to do the calcs (for net position) yourself, as they aren't included by default.

      I'm a subscriber to a newsletter writer who provides a spreadsheet with the figures updated weekly (but it's not free):

  2. Aha I also subscribe to Gary's website. Ill have a dig around there and find the data then. Thanks.

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