Silver’s Bearish Signal

ShortSideofLong Blog

Silver posted a bearish reversal at a major pivot of 200 day MA

SilverSource: Bar Chart (edited by Short Side of Long)

Several days ago, we published a post titled “Why Are Precious Metals Declining?” and stated that precious metals sector has just gone through “a rather sharp reversal in sentiment [which] usually tends to signal a correction during uptrends or a potential for another leg down during downtrends. This is unless of course, assets like Silver can continue a sustained rally with a break above the 200 day MA. We continue to track the overall sector very closely…”

We have been monitoring the price action with a magnifying glass. Interestingly, Silver did not manage to follow through. The metal posted a false break out above the 200 day moving average during the FOMC meeting, which was followed by a extremely sharp reversal at this important pivot level. To us, this signals an extremely bearish setup and therefore we have taken appropriate action over the last 24 hours.

FOMC continues to with hawkish stance, while funds pile into longs

Silver COTSource: Short Side of Long

While the next Commitment of Traders positioning report will be released tomorrow, the current data we have available shows that hedge funds and other speculators are extremely optimistic on precious metals, and in particular Silver (NYSE: SLV). We are at record high managed money net longs (hedge funds), which must be very surprising to gold bugs. The fact that the price has not made a higher high nor cleared the 200 day moving average – and yet every Tom, Dick and Henry piled into this trade – tells us there is still room further downside.

Obviously we are wrong with a tight stop above the 200 day moving average, however looking at the dumb money positioning and various bloggers opinions, we believe there is a lot of potential disappointment coming.

Fastest quarterly build up in hedge fund net long positions

Silver COT ChangeSource: Short Side of Long