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Is There a Short Squeeze in the Silver Market?

Posted: Dec 07 2010     By: Daniel Duval      Post Edited: December 7, 2010 at 6:12 pm
Filed under: Trader Dan Norcini
Dear friends,
As mentioned in my post yesterday, I have been monitoring the silver market for any signs of a short squeeze in relation to the ongoing campaign to push out Morgan. I was curious whether or not we would see any signs of distress among some of the shorts yesterday as silver first pushed past the $30 mark. The open interest numbers that were released earlier this AM show that if Morgan was indeed being squeezed, some fresh shorts were there to take their place. As a matter of fact, the last previous three sessions prior to today’s, have seen fresh shorts coming into the market rather than shorts as a whole being squeezed out.
We are not privy as to who the actual market participants are in any day-to-day price action but one thing is certain based on the RISING open interest – fresh shorts are coming in. A short squeeze of the nature that many are hoping to see in silver in regards to Morgan would be accompanied by a sharp DECLINE in the open interest as price worked higher. Such an occurrence would be evidence that they are covering shorts and the only selling is coming from liquidating longs. For now, there are still plenty of willing sellers in this market. The test for the bulls is whether they will keep the pressure on or if they will be unable to resist the temptation to pocket what have been extraordinarily good profits on open paper positions.
Based on the late day price action in silver, some of them apparently could not.
I am as keen as anyone to see the silver pit trade freely but as a trader have to be cautious not to get caught up in the excitement being generated by a soaring market where all sorts of rumors, ideas and theories are at work. Truth be told, most of the time, we are simply not able to discern exactly who is doing what or why unless we are on the floor and have to rest content with the price action alone being our guide. Successful traders let the market tell them when it is tired and when it is ready to run. They do not trade on hope or wishes.
Be careful those of you who trade silver and monitor the price action on the shorter term charts (15 – 30) for any signs that might guide you. Longer term investors can ignore the noise.
I am sending a chart of the continuous silver chart accompanied by a graph of the open interest above it for your examination. Please note carefully that the move from near $26.45 to over the $30 level has been accompanied by rising open interest. This is NOT what occurs when a short is trapped. Apparently Morgan is going to require a lot more pain to push them out of this market even at $30.  Even if they are covering, someone is more than eager to take their place on the short side at this point in time.
Please refer to yesterday’s post where I detailed some of the action being seen in the COT by the commercial class to round out this day’s post.

Find Your Investment Voice – Fast

Posted: Dec 07 2010     By: Eric De Groot      Post Edited: December 7, 2010 at 6:00 pm
Filed under: General Editorial

As expected, the run in silver (and gold) to its upper trading channel has brought forth numerous ‘experts’ providing (dis)information for both sides of the trade. The nearly spiritual rhetoric, largely intended to fleece the public from their funds, can only be compared to the bucket shops in which Jesse Livermore, one of the world’s master traders, learned to read the tape.
Livermore beat them because he had no personal feelings for “the game.” Don’t forget that.
“They might be crooks or they might not be as black as they were painted. I did not propose to let them do any trading for me, or follow their tips or believe their lies.” Reminiscences of a Stock Operator.
The number of ‘experts’ talking about silver (and gold) is increasing by the day with one headline example stating: “The Silver Market Is Becoming More Volatile — Could This Be a Bubble?”
The game has changed. Smart money knows it. The COT silver (and gold) shorts, similar to 2005-2006, have their heads squeezed in a vice. This is revealed by unusual changes in leveraged money flows for the gold and silver market. The reason behind the redirection of money flows, while likely debated endlessly on the Internet, will be largely immaterial to profits.
The fact is that silver is trading – better depicted as fighting – within an immensely critical (to the shorts) resistance zone of the upper trading channel. If this resistance is broken and tested as support, it suggests that silver will enter a more aggressive, higher-order advance. This advance will be difficult to control.
Silver, London P.M. Fixed:
Gold, London P.M. Fixed:
Why focus on silver? Silver, as expected during hyperinflation, is leading gold. The gold and silver ratio, approaching the target box, is probing levels not seen since 2007. The accelerating decline reflects the growing divergence between perception and reality as it pertains to currency valuation. It represents the evolution of the Weimar experience in America.
Gold to Silver Ratio (GSR):
Those seeking to play “the game” going forward must develop confidence in their investment ‘voice’ – and, fast. Have no doubt that rhetoric will swipe at the voice box in an attempt to render it useless.

Comex Continuous Gold

Posted: Dec 07 2010     By: Dan Norcini      Post Edited: December 7, 2010 at 6:33 pm
Filed under: Trader Dan Norcini

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