- The managed money traders always seem to be wrong-footed at the worst possible times.
- Traders need to be aware that COT report data may take time to play out. Lucy is very patient in tricking Charlie Brown.
- If silver continues to hold above $16.20, and overtakes its 20 day MA, then we could see a reversal of the current downtrend.
Should we feel sorry for the managed money traders in silver? Their positioning always seems to be wrong-footed at the worst possible moments. When the market appears to be rallying significantly, they pile in long and then the market shifts lower. When the market appears to be heading lower, they add aggressively to shorts. And then Lucy pulls the football away and they land flat on their backs.
We can postulate why this dynamic seems to happen over and over. The managed money traders as a whole might be thought of as portfolio managers, and their “silver exposure” might be just a small percentage of the total portfolio. Many of these managers might be following technical trends that can be exploited by the commercial traders, who are laser-focused on the daily and intra-day price action.
A portfolio manager's recurring trading losses in silver may not even show up on the radar or affect his quarterly bonuses. In fact, the odd correlations in silver might even strangely help a portfolio manager’s quarterly report, because they were “diversified.”
The Hapless Managed Money Silver Trader
We could evaluate this dynamic over many time periods, and I would be happy to entertain alternative perspectives based upon different data sets. The chart below shows the weekly position changes in managed money traders over the past three months. The red bar shows when the managed money traders were adding or covering short positions. And the blue bar shows when the managed money traders were adding or selling long positions. Study the chart for a moment.
Source: CME Group
During the period December 5th through December 19th, managed money traders as a whole were aggressively adding shorts and liquidating long positions while the price was rising meaningfully.
During the period December 26th through January 9th, the managed money traders were covering short positions and adding longs while price moved slightly lower.
And, during the most recent period February 6th through February 27th, the managed money traders sold long positions and added short positions while the price rose slightly.
As a whole, the managed money silver traders can’t seem to win.
Recent COT Report
This week’s COT report continues to paint a bullish picture for silver, as seen in the table below. Managed money traders are now NET SHORT silver. Some analysts have opined that this is a record-setting COT based upon this net short position.
This does not mean, of course, that everyone should run out and buy silver next week. The COT dynamic is over the medium or long-term, not over the short-term.
We don’t trade silver on one COT report alone. Lucy is very patient. But Lucy always wins.
The technical picture for silver is not bullish in my view. The weekly chart is neutral until price breaks above or below the resistance or support lines.
There are a couple of things to point out on a four-hour chart that I find interesting. First, we can see that last week, silver traded below a prior February low, before rebounding off of the weekly S3 pivot and the March S1 pivot. The $16.20/oz level should therefore be considered a very important level to hold for next week.
Silver will need to overtake the 20 day MA (pink line) in order to reverse the current short-term downtrend. The bullish COT report data is from Feb 27th, and silver traded below the February low on March 1st, which might mean that momentum long traders were stopped out of long positions. It is possible that the new low resulted in some hapless Managed Money traders covering long positions or adding to short positions.
If we hold above $16.20/oz next week and begin to head higher, we could see an aggressive upward move as these managed money shorts begin to cover their record short position.
In my Marketplace Service, I publish a daily update on the commodity Price Magnets for gold, WTI crude oil, natural gas, S&P Futures and the EURUSD futures. In addition, I conduct buy-side coverage on eight energy and commodity firms. My verifiable record of completed public trades since June 2017 is shown below.
Disclaimer and Notes
All charts above were taken from Trading View unless otherwise indicated, and all tables were created by Viking Analytics unless otherwise indicated.
This article was written for information purposes, and is not a recommendation to buy or sell any securities. All my articles are subject to the disclaimer found here.
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