Shorts Getting Tight?

Be prepared for the next great transfer of wealth. Buy physical silver and storable food.

tfmetalsreport.com / By Turd Ferguson / Tuesday, April 9, 2013 at 1:39 pm

The Spec Shorts have been feasting on the easy momentum of the downside trade. Now gorged, pockmarked and slovenly (picture Jabba The Hutt), are their shorts beginning to get a little too tight? Have they begun to bust at the seams? It’s only a matter of time.

But don’t expect this to be easy. First of all, we still haven’t accomplished much. Yes, gold had a successful test and hold of $1565 yesterday before skipping higher today. That’s a very positive development. And, yes, silver has been trading back above $28 and, more specifically, $27.93. This is great news, too. But The Hutts are never ones to go silently into the night. They will fight to maintain control. Expect stout resistance at easily-determined points. Some Hutts will double-down as they throw good money after bad in a desperate attempt to regain downside momentum. Will they succeed in the short-term? Perhaps. But in the end, the deck is stacked against them. The next move in the metals is HIGHER not lower and back toward the top of the now 18-month ranges.

That said, my job is about to get considerably easier. When The Cartels are jamming things downward, as they have for the past 5 months, all of the fundos and TA points are often thrown out the window. However, our current position is entirely different. We’re now dealing with Spec Shorts who will invariably turn and cover at easily-identifiable technical levels. We’ll also be able to anticipate points at which they’ll go flip long. Of course, The Cartels and other commercials will be involved the whole way and, when the see opportunities to let the Specs add some shorts back (like yesterday), they’ll almost certainly let them. But once this all turns…and it might have already done so with the blowout breakdown/bottom of last week…the general trend will be UP and not down and dips will/can be aggressively bought.

So I want to start today with a reposting of two charts from last Saturday. The breakdown of last week has all the earmarks of a bottom. WHY? For the same reason that a blowoff top often sparks a trend change. In a blowoff top, the last remaining longs are drawn in and the market reaches a point where everyone who was going to buy has bought. Then you’re left with more sellers than buyers and the trend changes. Go back and look at the action of late February 2012 for a classic example. Last week’s action was this same process in reverse. The metals broke down and out of their 6-week ranges since the lows of mid-February. This invariably drew in the final remaining short interest. Heck, Friday’s silver OI reached a multi-year high of 159,386! Incredible!! For some perspective, here’s a c&p of a comment I placed into yesterday’s thread:

“On Friday, as silver jumped 45¢, total silver OI surged by 2,174 contracts to a new multi-year high of 159,386.
Again, I cannot stress enough how totally F’d up this is, especially in the post-MFG era. For perspective, MFG declared bankruptcy on 10/31/11. A CoT survey was taken the next day, 11/1/11. That survey showed:

• Total gold OI of 442,435. As of Friday, total gold OI was 412,744. Down 6.71%.
• Total silver OI of 108,675. As of Friday, total silver OI was 159,386. Up 46.7%.

The price of gold closed on Friday 10/28/11 at $1746.20. That same day, the price of silver closed at $35.27.”

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Thanks to BrotherJohnF