Commodities Remain Under Pressure, Silver Particularly Ugly
Dan Norcini | Dec 15, 2015 12:18AM ET
IN a bit of a surprise yesterday, crude oil somehow managed to pop high after falling below $35 at one point. It seems like it was more a case of running out of sellers rather than aggressive new buying.
Part of the reason for the move higher was that it's the same pestilential macro trade that seemingly surfaces every single time the dollar moves lower, namely the macro boyz start buying commodities in general.
Even that however, did not allow pressure to abate all that significantly across the broader commodity complex. While the grains were higher on account of dollar weakness, the meats could not get out of the way of falling cattle prices with the hogs dragged lower as a result.
There was also weakness in the softs yesterday as well as weakness in copper, gold and especially in silver, which managed to take out another downside support level as it set a fresh 6 year low.
At this point I have no idea how low silver prices might yet fall, but in looking at the monthly chart, there does not seem to be a whole lot of downside support in the market until one gets closer to the $12.65 level. It has already retraced every single one of the major Fibonacci levels—from the 2008 low to the 2011 peak—meaning that by definition, it should move to erase the entirety of the up-move off of that 2008 low. That is near $8.40.
Could it get that low? Who knows? But one thing is certain, namely this is one ugly chart:
Here’s the problem with silver… these hedge funds are still holding a significant number of long positions in the market.
Get The News You Want
For some odd reason, in much the same manner as the oddity of the hedge funds remaining on the long side of the crude oil market as it has collapsed, the hedgies remain married to the long side of silver. In and of itself, that is not necessarily a problem. The problem arises when DOWNSIDE CHART SUPPORT levels are being taken out, as is the case now.
Those hedge funds are now going to be forced out.
As you can see, hedgies have been increasing their short side exposure to silver, which is what one would expect them to be doing given the horrible technical chart pattern the metal is displaying but look at how SLOWLY they are reducing the number of their outright longs. The simple truth is, the dark blue line on the second chart is ABOVE the red line, meaning that there are more long positions in silver being held by hedge funds than there are short positions.
The further this thing goes south, and more importantly, the greater the number of downside technical support levels are violated, the more selling fuel there is in this market, as that heavy long position goes deeper and deeper and deeper under water.
I realize that the hedgies have deep pockets, but being long silver is draining those pockets very quickly!
One final chart, of the Dow Jones-UBS Commodity Index...
Now look at the LONG-TERM CHART:
Finally, a long term view of both the Commodity Index and the silver price. Given the chart of the Commodity index, why would anyone in their right mind be bullish silver when they are fighting a trend lower? That is why I cannot understand how the hedge funds have so screwed up this particular trade. Amazing…
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.