So, while many of you are now shaking your heads after reading the title, I have one question for you: Have you not noticed how bullish most of the metals market and media has become, and oh so quickly?
When I sent out my search party last weekend looking for bears, they were nowhere to be found. If you remember, I said that "[e]ven the hedge funds who were heavily short the metals have been frantically covering their short positions this past week, and that was even before the bigger rise seen on Thursday."
As evidence of my perspective, I also noted:
The latest COT report shows that the hedge funds, who were holding historic levels of short positions, began heavily covering those shorts, and that was based upon information before the tremendous rally we witnessed on Thursday. My expectation is that they have covered to an even much greater extent than the latest COT report has shown, which has likely taken most of the short positions out of the hedge fund world, and potentially left a vacuum underneath the market. It also suggests that much of the panic buying we witnessed this past week was more likely from short covering rather than outright buying due to a belief in the new bull market. More importantly, my gut feeling is that the commercial traders have begun to add large short positions in earnest in preparation for the next larger degree metals take down, which will likely be the final take down we see in this 3+ year correction.
And, if anyone bothered looking at the latest COT report, you will see just how prophetic my expectations were. The hedge funds, who were at a near record short in gold and a record short in silver were simply crushed, and forced to frantically cover those shorts. That led to a significant amount of the fuel for the rally we recently witnessed. Meanwhile, the commercial traders began to pour on the short position, as I suspected they would. While this does not necessarily mean that we are about to crash in the market, nothing has changed my perspective for expecting lower lows in the metals before this 3+ year correction has completed. Rather, the latest COT report bolsters my position that another metals take down will likely be seen. In fact, this report was so supportive of my position that one metals blogger I read went so far as stating that he does not believe the latest report is even accurate.
As I go back to the media, and my weekly perusal of metals articles, I have yet to see, over the past week, a mainstream article suggesting that another low will be seen in the metals. In fact, they are all in unison hailing the return of the gold bull. I could not find a single bearish article on the metals, especially on Seeking Alpha, although I am looking forward to the return of Robert Wagner. It truly seems that everyone has now moved to the bullish sentiment side of the boat. And, when everyone is on one side of the boat, what usually happens?
In fact, history has shown us what occurred the last time a large group of people worshiped a golden bull; they were severely punished. For those that are familiar with the Bible, you know exactly about whom I speak. And, I fear that the current worshippers will meet a similar fate.
For the upcoming week, the main support level I am now watching is 125.75, with upper support at 126.20. Assuming the market can maintain these levels as support, we still have the potential to head to the next target region between 128.50-130. However, a break down below 125.75, will minimally have us testing the 122 region. And, I will be open to the potential that we are on our way to lower lows if that region of support is broken in impulsive fashion (an Elliott Wave term). If we are able to maintain support above 122, then we can still attempt a run to the 128.50-130 region.
Disclosure: The author is long SLV. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I own intermediate term GLD puts.