Today In Silver

It has now been over two months since the CFTC hearings on the COMEX metals and Ted Butler reports this week an Impressive Result of over 3,000 comment letters about the hearings of which apparently 95% or more were Butler copycat comments urging the commission to limit silver positions to 1,500 contracts. Alas, I fail to see anything impressive about this given that the only position limits the commission would consider changing are speculative limits. Unfortunately the big bad bullion banks are not holding their short positions as speculators but rather as commercial hedgers. To hope the commission would limit hedging positions is beyond silly, it is seriously deranged. Doing so in COMEX silver and/or COMEX gold without setting similar limits in all other futures markets will never happen.

What Ted Butler and others concerned about silver price suppression should have done, instead of making an ineffectual plea for across-the-board position limits in silver that includes commercial hedgers, was to ask the commission to institute robust compliance review and enforcement over the hedging designation of commercial positions. By their own admissions during the hearings, neither the commission nor the SRO (the exchange itself) have spent a lot of time or effort historically on reviewing hedging designations of the commercials. This means that the bullion banks are largely taken at their word that their positions are legitimate hedges. Shining a bright light at the bullion banks by instituting thorough periodic policing action would surely result in some commercial short positions being disqualified, and such shorts would likely be closed permanently.

Alas, Ted Butler and some silver bugs are so enamored of the silver market that they believe it is special and unique above everything else. Sorry buckos, silver has some great investment and industrial qualities and it is very shiny as well, but the reality is that very few people in the world care a whiff about it. Silver might be everything to you, but to the bullion banks silver is a tiny profit center hardly worth the effort. That implies the possibility of rogue trading desks manipulating the silver market (probably both up and down) but precludes high level collusion between the banks. If the banks are going to collude, it would certainly be in a market bigger and more profitable than silver.

So, congratulations for derailing a potentially positive outcome by shifting the commission’s focus to your demand that silver and gold are to be treated as special markets deserving of special rules. Let’s hope the commission is able to do the right thing by instead announcing regulatory reviews of commercial designations. Sometimes you are your own worst enemy.

silverax Windbag Wisdom

We are very fortunate to have access to the technical expertise of Eidetic Research over at Metal Augmentor. Going forward Eidetic has informed us that we will receive shorter-term technical analysis that is frequently updated in addition to the big picture technical reviews that we are so fortunate to receive every few weeks or months. This is very exciting and we feel it makes the Metal Augmentor service a must-have for any investor interested in not only the metals but other markets where big profit opportunities exist.

Here is a bit more information about Eidetic Research for those who do not fully appreciate what this recent development really means. Eidetic is a highly-respected institutional level technical service that is of a quality rarely if ever made available to the investing public. Indeed, we don’t think any retail-oriented technical analysis even comes close. Moreover,  we firmly believe only a small handful of institutional technical analysis, costing thousands of dollars per year or more, can hold a candle to Eidetic. Fortunately this is not well recognized at present simply because there isn’t much of Eidetic’s work in the historical public record to examine. We say “fortunately” because otherwise Eidetic would probably not be available to investors such as Metal Augmentor subscribers. In the future should Eidetic decide to start providing technical work to institutional investors again, we are hopeful that Metal Augmentor will be able to negotiate an ongoing arrangement with Eidetic.

From time to time I will reprint the silver portion of these technical updates here at SILVERAXIS in the hopes that those of you who are on the fence about joining Metal Augmentor as a Founding Member will finally get a clue. If you do wish to join, go to the Metal Augmentor home page and add your name to the mailing list. Any day now we are going to open the service to new subscribers and if you are on the mailing list you will be among the first to find out.

So here is the latest silver excerpt from Eidetic Research:

Silver – Jly

All trends are up. Resistance 19.50 – 19.90, then 20.35 – 21.50. Support maybe 18.90 plus/minus; more probable 18.60 – 18.26. Upside potential a test of major resistance above 20.00 that defines the March 2008 intermediate-term top. Ongoing rally development from the early Feb low at 14.775, basis the active nearby futures, reached a new high Thur at 19.865. Gains were lost by the close* which established a small top reversal range. Some followthru weakness on Fri, including range expansion, suggested that short-term buyers may be running out of nerve. Rising daily stochastic values are near 80, a level generally considered “overbought”. Look for some two-sided consolidation between 19.00 – 20.00 on Mon-Tue.
ER 5/16/2010

Please note that for analytic purposes we use the Globex afternoon close at 5:15 pm ET as our Comex closing values rather than the official Comex settlement. In our view, it is absurd to consider a 1:30 pm ET official settlement as a legitimate close when other major futures markets such as Chicago treasuries and forex trade for hours beyond the Comex settlement times.

Disclaimer: Futures and options are inherently risky and should only be considered by highly risk tolerant investors. You can loose more than the amount invested and sometimes even more than the amount in your brokerage account so it is critical to seek the oversight or advice of a licensed professional if you do not have extensive experience trading futures and options.

Don’t mistake the above for your typical broker or market technician drivel that you might have access to, this is the real thing and not otherwise available to you normally unless you are an institutional investor or bank trading desk and paying thousands of dollars for such a service. This is not some amateurish charting by a wanna-be, magic numbers, astrology or some other BS either, it is the result of decades of nose-to-the-grindstone professional technical expertise that has actual utility helping people make money in the real world.

If you want to thank me, just go and join the mailing list and sign up for Metal Augmentor so you can be alerted when we open it up again to new Founding Members. Now that our new system is almost ready to go, we are going to be kicking ass and taking names. What, you don’t want thousands of dollars in investment and technical research for almost nothing? It’s your loss (and literally somebody else’s gain).

silverax Technical Analysis

On Friday silver went on a tear starting around noon Eastern time, eventually adding a dollar per ounce and recovering much of the losses suffered earlier in the week. In the meantime gold remained steady above $1,200 per ounce after having caught very impressive flight to safety action while the Greek debt inferno continued to blaze. The fact that silver would have risen strongly on Friday should not be surprising as it was merely recovering its follower status behind gold, which surged pretty much all week and came within a whisker of making a new record high. What is surprising is the nearly vertical lift-off by silver around noon Eastern, and Karl Denninger thinks he knows why:

You don’t think that GOLD was being speculatively shorted beyond intraday position limits, do you?  That oval, by the way, is right when the announcement was made.

Or shall we look at SILVER?

Actually Karl, it is very doubtful that gold and silver were “being speculatively shorted beyond intraday position limits”. The reason is simple. As of the Disaggregated COT of May 4, 2010, there were a grand total of 8,627 speculative short futures positions in the reporting category (by definition a non-reporting position cannot exceed position limits). Since the speculative position limit in silver is 6,000 contracts (1,500 in the delivery month but there were only a grand total of 600 contracts outstanding and 418 contracts traded in May COMEX silver on Friday so that limit could not have been exceeded) that means one trader would need to hold the vast majority of speculative short positions. Yes, I know the CFTC warning is about intraday positions but still there are 30 large reporting traders in COMEX silver futures. It is simply inconceivable that a single or even a group of large speculative traders could have each been short more than 6,000 contracts of COMEX silver on an intraday basis especially when we look at the charts and note the trading volume that occurred in the active July 2010 COMEX silver contract during and after the price spike:

Read more…

silverax Windbag Wisdom

A picture is worth a thousand words. This was so embarrassingly obvious, too bad we didn’t get a chance to put together an option play on it due to how fast it went down.

UPDATE: Perhaps this is a good time to mention that there is a wealth of information in the comments section of the Metal Augmentor website (most of it accessible only by subscribers) in addition to the official posts. You should get into the habit of reading those comments and maybe even participate yourself. In any case, here is a little comment from Tuesday:

May 4th, 2010 at 16:39

You are probably right, perhaps some puts in the USD although it had a beautiful chart today for such a supposedly ugly currency! I was looking earlier at July COMEX silver call spreads because when volatility is high the straight spreads (bull or bear) can sometimes be “affordable”. Nothing doing so far, however, and I’m actually tempted to look for outright long calls in COMEX silver JUNE in the 18.50 - 19.00 range. Yes, June is not an active month but we are in an interesting period and whatever is going to happen (follow-through, reversal) is probably going to happen in 3 weeks or less. I doubt we flatline here but of course that is the risk.

And then on Wednesday there was this one:

May 5th, 2010 at 14:39

[David makes a point]: I still think the July contract would be better for Silver because I do not see it bouncing right back especially if we get to 16. The damage is done. And with gold breaking below 1160, it will be that much harder for gold to climb back to 1200 range soon.

Crude is looking attractive at 79ish here. I took a lightly long position at 79.19. I’m looking at adding if we get below 79. The positives for crude are 1) continued signs of economic recovery (or at least the repeated drumbeat that we are in an economic recovery), 2) the upcoming peak summer gasoline demand season, 3)potential for the Gulf oil leak to disrupt imports and refinery output, and 4) Opec’s desire to keep oil in the 75 range meaning not down to 60 any time soon. Negatives are fear that demand and economy will remain weak and supplies high.

Sorry, I know this is not Oil-augmentor, but I don’t mind speculating in oil at these prices, but I am timid about silver and gold.

[silverax responds:] Au contraire, silver did jump back up when gold diverged last time and today we are seeing another major divergence with gold actually up but silver still down over 40 cents. I bought a June 18.50 silver call for $700 just in case we get a repeat of what happened last time. Should we we get just a slight recovery in silver back toward $18.00 I will try to sell a 19.00 call for $700 to set up a risk free trade.

As a postscript, I just went ahead a few minutes ago and sold the call option (a bit early I might add) for a tidy $1,500 profit after commission. Probably one of the easiest 1.5G’s I’ve ever made.

silverax Windbag Wisdom

Today was one of the wildest days in the market that I can remember and zurbo and I had the fortune to be on the phone discussing the market the moment that the bad craziness went down. We watched the Dow and other stock indices dive about 10% in the course of a few minutes and then recover to 5% losses immediately. We quickly scrambled to fill some orders on positions we’ve been eyeing to accumulate at lower prices, but with only moderate success due to the fast and furious price movements. We do think that some weakness will carry over to the next couple of days so we will be looking for more buying opportunities to present themselves.

There were some important lessons learned today.

One. Gold showed today that the next time there is a flight to safety amid a crisis of confidence, we can expect the gold price to be firm and even strong while other markets are crashing. Clearly there is a different group in charge of gold today compared to the Fall of 2008. The last couple of weeks I have felt that gold could make a tiring move to $1,200 but the Midas metal easily slashed through that level today to reach a high slightly above $1,210 spot. Gold continues to hang above the $1,200 level as I write this. Importantly, the basis measures are indicating that the price rise is being supported by bouts of BOTH paper AND physical buying. For example, at several points today June COMEX gold reached a $10 contango (normally around $1 with about 3 weeks to first delivery notice). As I write this, the contango continues to spike momentarily into the $6 range, which is more than 5 times its normal level. What this means is that there is periodically a wave of buying pressure in COMEX gold as compared to the physical market. But the physical market is no slouch either, there having been a number of trades today with gold in backwardation. Moreover, the Gold ETF Basis has seen some spikes in the NAV premium as well to above normal levels, indicating that even while investors were dumping stocks in general, they were buying the gold ETF GLD. The basis indicators don’t show off very well on a crazy day like this but I will try to post some charts later for Metal Augmentor subscribers.

Read more…

silverax Windbag Wisdom