As you know, we have been expecting a move on silver to the downside since we called the double top and those that traded that technical pattern walked away with a handsome profit. Much of our guidance has been from the Commitment of Traders Reports which showed that the commercials (inside smart money) was aggressively net short while the large cap speculators were considerably net long.
It turns out my Sunday is going to be extremely busy with a family function so I wanted to get this post up tonight for anyone following along to consider. As always I welcome any commentary or questions.
Both of the charts I use to analyze the COT reports show that while the commercial short positions decreased a tad as did the spec longs, (this should have been expected on that 4% down move we had a week this past Friday) they have not decreased substantially and the charts clearly show that the shorts are still shorter than they were at the March 2012 $37.00 top and the large spec long positions are also still greater than they were at that same time.
So when we look at these two charts, we can deduce that there is a high probability that silver may face another round of selling before these positions clear themselves to the degree that we can confidently go bullish again.
This next chart also shows that silver, up until now has traded in perfect lock-step with the Fibonacci retracement levels. Also, I read some articles indicating that silver had put in a small inverted head and shoulder pattern however, if we do take that potential inverse H&S pattern into consideration then the move from the break of the neckline at $31.76 is complete. The move up from the neckline has surpassed the low at the bottom of the “Head” in that pattern so if you are watching that pattern, in my view, it has now met its required completion. Here’s the chart that show’s how perfectly silver has traded with the fib levels.
By Elliott Wave counts, a move to the 50 day moving average would have been ideal to complete the bounce count but it is not required given that the bounce, according to the Elliott Wave counts has already met the necessary levels to be considered complete.
Therefore, while there may still be some upside potential present (to the 50 day MA), I highly favor the view that this bounce is near or at completion and the high of the day on Friday signalled the end of the bounce. In m view, we should see renewed selling. If the COT Charts did not still flash bearish signals then I would not be taking this view. However given that they do, I can’t with confidence state that this correction is over. A sustained rally or a strong close above the 50 day MA would probably lead me to abandon my short view but for now, I continue to be of the view that we should see a resumed move down as early as the start of next week.
Please read my disclaimer and note that this post is not a recommendation to buy or sell.