Who Is The Dumb Money In Silver?

Summary

• 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.

Introduction

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 5^th through December 19^th, managed money traders as a whole were aggressively adding shorts and liquidating long positions while the price was rising meaningfully.

During the period December 26^th through January 9^th, the managed money traders were covering short positions and adding longs while price moved slightly lower.

And, during the most recent period February 6^th through February 27^th, 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.

Silver Charts

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.

Commodity Conquest

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.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I am long PSLV

Comments

[kesslerblvd]

What is the fine print of SLVO? At 7.75, what happens if it drops in half, for example. Is there a threshold for share price. Would there be a reverse split. Also, the trust can't be that thrilled to pay out a 10% dividend.

[pearl jam]

Anybody who owns silver is dumb money....and I own silver. Stupid waste of decades

[6228371]

"Anybody who owns silver is dumb money....and I own silver. Stupid waste of decades"

There were some great selling opportunities, especially in 1980 and 2011. With silver mining stocks rather than SLV, silver doesn't have to rally that much to get nice gains. Notice how much AG rallied in 2016 for example.

[Viking Analytics]

One day, the endless avalanche of derivative paper sales of silver will come to an end. Until then, patience . . . good luck.

[Scoutcar 42]

Unfortunately, not in your lifetime.

[insightful?informed decider]

BUT * I * can retire because of buying silver in the late 90's .

[insightful?informed decider]

RN,Yea maybe they don't know how to buy ,sell ,or trade silver like they should. But In can retire anytime I want because of buying silver in the late 90's .Most sure thing I have ever invested in Buy Low Sell High,rinse and repeat.

[Ron Netz]

The managed money traders are not even close to being the dumb money in silver. Here is the epitome of dumb money in silver:

http://bit.ly/2C88osE

[Risk Professor]

Is PSLV a better alternative to SLV?

[Viking Analytics]

PSLV, as a "trust" rather than an ETF, appears to have more direct allocation of bullion to each investor. And it trades at a discount to the value of silver. This is astonishing to me.

http://bit.ly/2FV4qCK

If I am short-term trading, I might still buy SLV, since it has better liquidity than PSLV.

[Steve C....]

Viking, I will discuss my roadmap using cycles, sentiment, and EW - however, the road map is just a guide and not an official long or short signal. Having just completed a review of my trading system for precious metal stocks, one thing that stands out is Silver commercial traders, the smart money, are NET LONG on current data, and using Larry Williams 6 month look back, they are still LONG, and even on the 3 year look back are NET LONG! This is very very rare, and will prove to be bullish but with a delay. Retail traders, the dumb money, are currently 40% bullish, and a little bit more bearishness is likely before a turn. Also, my views on the dollar have changed slightly from last week. It appears that the approximately 10 year cycle trough in the DXY still has another minor leg down. Given the multi-month timing low for this trough, the cycles can change a bit. I think the next 10-15 trading days will lead to the dollar moving down to target its final low in the 87.27-87.74 level which would equal waves 1-3X.618. If this roadmap is correct, then I would expect GDX to move up perhaps as high as 24.00 in this timeframe while GOLD moves up to or above the 1377 area to as high as 1409, and SILVER meets resistance around 17.10. While short term traders may benefit from going long GDX or playing the leveraged instruments for the next ten days, ultimately I still suspect my trading system may not set up for another major buy signal until the May or June timeframe for the miners themselves, given an expected bounce in the dollar toward the 95 area in that time window. It is my opinion based on cycles, that SILVER could see the 25 level before the end of 2018 with most of the upside move coming in the 2nd half of the year.

[Viking Analytics]

Hey Steve. I agree that the silver commercials are net long when we take into consideration the silver that is in the COMEX vaults. This is indeed a good sign for bulls . . . that as you mention could take some time to play out.

I am becoming convinced that the macro picture points to a continuing decline in the value of the USD. I would love to see silver hit 25!

[6228371]

$25? I would love to see silver get to135+. The 1980 $50 silver high adjusted for inflation is around $150. With gold at $1350, and silver mined at less than 9 times the rate of gold, a gold/silver price ratio of 9 would give a silver price of $135. Of course I expect gold to get much higher, so silver might get well over $200. In the late 1490s, silver had the purchasing power per ounce equivalent to around $1,100 of today's dollars. Silver is so much more useful now than it was then.

[Scoutcar 42]

Keep dreaming. Gentleman's bet...you will NEVER see silver prices at $135 , $150, or $200 an ounce in your lifetime. In fact, you'll be lucky to see $25 silver before you expire. There's too much physical silver in the public's possession, in the metal exchanges of the world, and in un-mined areas of the world that will prevent silver from ever reaching your dream level. Technology someday will allow metal recovery from landfills that will also add to the supply. I hope I'm wrong in my predictions, because I'm one of "those" people who own a ton of silver that I too would like to cash-in at much higher levels.

[astute pathways]

Get a monthly check from SLVO.....Holding Physical silver pays no dividend or intrest,and you have the risk of it being stolen

[Ben Wallace]

never heard this before....

[BrasilianBooty]

Cloudy66–“Holding physical silver pays no dividend or interest, and you have the risk of it being stolen.”

You don’t have to pay a tax on physical silver like you do with monthly dividend checks (at least not until you sell). As for it being stolen, good luck carrying away more than one monster box. While you’re struggling to escape with it, I’ll have you in the sights of my Glock 20.

[astute pathways]

I do agree on taxes. no escaping it......I think if you sell under $600 a day in physical silver to[ maybe a pawn shop], then it would not have to be reported...I could be wrong

[Gadzman_33]

Esoteric people know that the Crimex is nicknamed that for a reason , because in layman’s terms they are selling silver contracts ( 5k ounces per contract ) That is not in their vaults !!! If investors would all want to take the 1,000 oz bars that they legally own then massive chaos would occur and silver would soar !!!! Long physical Gold and Silver outside of any institution 😏

[Jeolla]

Is it possible to take physical delivery of a 1000 oz contract? It is only $16,500. If people took actual delivery, wouldn't that stir things up?

[Viking Analytics]

Jeolla - there are actually physical deliveries every month (although they are small in comparison to the total market).

[Robert 7809591]

Eventually the contracts are settled by either being closed out or physical delivery.

[Alessio Calcagno]

Can SLV be exploited if lag spot?

[Viking Analytics]

I have little doubt that the large traders can arbitrage values in SLV with positions elsewhere. On the other hand, the "arb" is probably so small that I don't believe that it matters too much.

[insightful?informed decider]

I'll never understand why an investor would buy SLV .If I want an ETF I will buy USLV when silver bottoms(Friday made 5% same day),and yes that's gambling. If i want to purchase silver I buy physical. If i am really long silver and want to hedge I will use ZSL. What's the point of an ETF to buy and watch it erode? Just buy the real thing if that's the goal.

[Robert 7809591]

I went through this with someone on another article. What you fail to mention is the USLV is highly leveraged. You dont say what happens to the USLV when the trade goes against you. I own physical silver (for decades). I have to pay for safety deposit boxes to keep it in. Every method of ownership has some draw backs. I understand about the SLV but I would rather just hit the sell button than have to transport my silver to market or pay someone to store it for me.

[dogg47]

slv is like day old chewing gum imo

[Robert 7809591]

There has to be something going on with short positions in the SLV. Friday silver was up about one and one half percent but the SLV barely moved. Eventually the SLV does catch up but it can be frustrating watching the day to day moves.

[Viking Analytics]

It is shocking to see number of bids and asks in SLV. Lots of liquidity, and usually more "asks" than "bids" . . .

[Eric Peterson]

The settlement time for silver futures is 1:25 pm ET, while SLV closes at 4 pm. There is a two and a half hour difference. And guess what? The futures went up one and a half percent between 1:25 pm and 4 pm on Thursday. Friday's price change quotes for silver are measured from Thursday's 1:25 pm price, while SLV's Friday price change is measured from 4 pm Thursday.

This explains your observed mis-match between price moves in silver and SLV on Friday. No funny stuff is going on, just comparing different time periods.

[Robert 7809591]

You are making my point for me on the time lag. There is also a stock market component where people can short the SLV but they are not shorting silver itself. Likewise buyers can jump in and push up the price of the SLV. While the two trade closely, they dont trade in tandem. And some banks not long ago were fined for manipulating the price of silver, so that in effect manipulates the price of the SLV.