The big (near) surprise in silver in the last reporting week is that the technical funds actually added aggressively to short positions despite an increase in prices because the moving averages weren’t penetrated. Even though that’s what occurred this week as well, the prior reporting week featured a large increase in total open interest, suggesting something unusual was up. This week, total silver open interest is down, so I feel it would be too much to hope for a repeat of last week’s results (although I’d love to be wrong).
It seems to me that even though the key moving averages weren’t penetrated this reporting week, the one dollar increase in price over the past two weeks should have been enough to have persuaded some technical funds to buy back short positions on a loss-limiting basis. In fact, I think there might have been as many as 10,000 contracts of commercial selling and managed money short covering. I would guess that the commercial selling was mostly of the raptor long liquidation variety and I am not expecting that JP Morgan increased its short selling. Nor do I think many managed money longs were added, just shorts bought back.
Even if the silver report indicates an expected deterioration of 10,000 net contracts or so, it’s important to remember that there was an improvement of nearly 80,000 net technical fund contracts over the prior four reporting weeks, so the market structure in silver should still be good to go (for an explosion). The wonder is that here we are, nestled just slightly below the major technical fund buy signal of upward moving average penetration,
with a COT setup as good as I can remember. As The Wall Street Journal points out – it’s increasingly a quant investment world. What it doesn’t point out is that the quants are on the wrong side of COMEX silver in a very big way.