This week’s COT report illustrates my point from last week that the foundation a short squeeze is currently being laid for a much more pronounced and violent move to the upside in the coming months. The commercials traders have definitely lost control in this game of cat and mouse and are struggling to continue walking this tight rope. They tried to knock down silver three times this past week with only the one day, Friday, having any real merit as silver crossed below the $26/oz mark. This is extremely bullish as the commercials can’t just force the price down at will via the futures market. The most recent takedown on Friday will prove to be short lived with the commercial traders suffering immense losses as we move forward. A strong support level seems to be pegged at the $25/oz level, providing a strong base from which to move higher in the coming months.
Another big event took place regarding change in margin requirements this past week as we set 30 year record high prices in silver crossing the $29/oz level. Call me a conspiracy theorist but I find it extremely odd and disheartening the exchange (CME Group) did this during a retracement after one of the biggest rallies ever in silver. This hurt the longs and helped the shorts as it helped stop the bleeding at a most opportune time while forcing many longs to exit positions to meet the new margin requirements. The timing of this announcement is the real evil in this situation as the CME group’s timing was impeccable if in fact they are colluding with JP Morgan. Should this have happened during the rally, the shorts would have been squeezed even harder, sending the price of silver well into the 30’s or higher as they would have been forced to cover more and more short positions. Now Onto the COT report ended Tuesday November 9th:
It is very encouraging to see the reduction in the net short position of the overall market but this wasn’t due to the top 4 (namely JP Morgan) reducing their concentration in the market but rather the top 8 as well as the combined commercials (38 banks). In fact JP Morgan, by itself is still trying to resist the inevitable short squeeze that will eventually come to light due to the physical squeeze that is beginning to build. But looking at the bigger picture JP Morgan has reduced their net short position from 37,400 last February to 30,760 as of the latest bank participation report. All in all this is encouraging as well as even the likes of JP Morgan know they are very susceptible to being caught in the middle of a short squeeze. It appears as if they are trying to unwind their short position as to not disrupt the market and send the price of silver to the moon in a short period of time. The top 8 commercials shorts are obviously feeling the heat (see COT above) as they currently represent 68.26% of the total net short position, down from 70% in the prior week.
Next Week: Did the increase in the margin requirement have any effect on the structure of the COT?
