# COT Commercial signal failure



## refined silver (4 March 2008)

A topic that has popped up a few times is to do do the Commercials in the COT reports fail? The answer is, of course, no one is infallible.

Here is a recent example. (Commentary and charts from Dan Norcini)

Posted On: Saturday, March 01, 2008, 12:27:00 PM EST

Gold and Dollar Market Summary     Author: Dan Norcini

Dear Friends,

The following charts detail the Commitment of Traders report through Tuesday of this week. I have included a chart of silver since there is a development in there that bears commenting upon. Please refer to that chart where I have included some of the following comments and marked the regions on the chart demonstrating what is taking place:

“Notice that the commercial short category sharply reduced the number of outright short positions they have been carrying (-9,297). This occurred from Tuesday of last week through Tuesday of this week. Over that time frame, the price of silver rallied $1.22. If you look at the chart very carefully, you will observe that this is the first time this has occurred in which the funds HAVE NOT been reducing their net long position. In other words, this appears to be the beginnings of a commercial signal failure. Normally the commercial perma-shorts in silver have used fund long liquidation to cover their shorts as the market moved lower. Not this time - they are buying on the way up!”

Also, while I did not note this on the chart, it is also noteworthy that someone had to obviously take the other side of that trade and sell silver futures. We might normally expect to see some of that selling occurring among the fund longs who could use some of that forced buying to book a few profits and sweep some of their paper earnings off the table to realize them. Amazingly enough, this has not been the case. The funds continue to buy. Guess who is doing the selling? The SMALL SPECS! Apparently, some of the public is trying to pick a top in the silver market. They have built up the largest OUTRIGHT SHORT POSITION IN TWO YEARS! Talk about a bullish signal. The most undercapitalized traders on the planet are adding new silver shorts as the market breaks into a 28 year high. No wonder open interest continued to shrink on Wednesday and Thursday this week. I would venture that a large portion of the brand new shorts by the small specs, which are deeply under water, are also coming off as the market stops them out. Forced buying by the commercials as they cover a goodly portion of their outright shorts and buy stops being set off among the public are powering this market higher as the funds squeeze them out.

This is going to be something worth watching next week to see if it continues or if things take a bit of a breather. Remember, it is a new calendar month on Monday and that often means brand new allocations of fund money to the markets. If that occurs, the silver shorts are in serious, serious trouble as the longs will show them not one ounce of mercy. Blood in the water draws sharks and the silver shorts are not only bleeding, they are hemorrhaging massively.

Stay tuned for this one!

Concerning gold and its Commitment of Traders – unlike silver the commercial shorts did not cover a substantial amount of their outright shorts over the past week’s reporting period. The reduction was a mere 848 shorts, a drop in the water compared to their massive position of 356,374 shorts. Some might be tempted to extrapolate that the commercials are getting squeezed in the gold market as well and that we also have a commercial signal failure occurring in there also. That is not the case, at least not yet, as can be seen by looking at the gold chart from Tuesday of last week through Tuesday of this week. Last week April Comex gold hit a high price of $958.40 on Friday. However, on Monday and Tuesday of this week, it dropped all the way down to $928.90 or $30. It was during that brief two day drop that the commercials covered some of their existing shorts as some of the funds were liquidating their longs (-1,447) and also adding new shorts (1,449 to be exact). It is quite unusual to see the funds basically canceling each other out in the gold market. By Wednesday, the brief price retreat was over and gold powered north again. We do not have the data to cover Wednesday through Friday of this week but open interest records basically held steady. In other words, as far as I can tell at this point in the game, there is yet no evidence to indicate that the commercials have thrown in the towel in the gold market. On the contrary, the price action from my perspective indicates continued selling resistance by the same entities that have fought the rise in the gold price since this bull market began back in 2001. We will get a clearer picture of al this next Friday which can seem like an eternity when prices are moving the way they currently are.

One last comment – I have included a chart of the COT data for Minneapolis Wheat so that you can see firsthand what a commercial signal failure looks like when the shorts are caught on the wrong side of a runaway bull market. The area marked within the ellipse delineates the short squeeze. Keep in mind that this began back in November of 2007. Prices moved from $8.00 all the way to $25, tripling in the process.


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## refined silver (4 March 2008)

A copy of a recent minneapolis wheat chart which shows what the price did while the commercials were covering, - tripled. 

Silver up another 50c - so who knows?


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## refined silver (4 March 2008)

Sorry. Posted same wheat COT chart, not price chart. Here it is.

No, its not, won't upload for some reason. Need to go out, will post it tonight.


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## MRC & Co (4 March 2008)

Thanks refined, where would I find a gold commitments chart?  Or commitments charted like this on other commodities, copper, coal etc?

Wonder what the latest data on gold is showing now that the price keeps rising, short squeeze on perhaps now?  

Cheers


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## refined silver (8 March 2008)

MRC & Co said:


> Thanks refined, where would I find a gold commitments chart?  Or commitments charted like this on other commodities, copper, coal etc?
> 
> Wonder what the latest data on gold is showing now that the price keeps rising, short squeeze on perhaps now?
> 
> Cheers




This is more detailed, but slightly harder to interpret if not used to them.
http://www.cftc.gov/dea/futures/deacmxsf.htm

This has one form of charts
http://www.softwarenorth.net/cot/current/charts/GC.png

This is an easy one to read.
http://news.goldseek.com/COT/1204922017.php


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## refined silver (8 March 2008)

Posted On: Friday, March 07, 2008, 8:27:00 PM EST

Gold shorts far from being squeezed, seem to have unlimited capital behind them (US Fed), but enough SWFunds will keep buying so that price keeps heading north. 



> Gold and Dollar Market Summary      Author: Dan Norcini
> 
> Dear Friends,
> 
> ...




Was just over the word limit so continued in next post


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## refined silver (8 March 2008)

Here is the continuation of the previous article. 



> Now we move onto silver – last week I wrote that it appeared we were witnessing the inception of a commercial signal failure in this market because of the rather unusual occurrence of seeing the commercial shorts buying silver on the way up rather than their usual modus operandi of buying or covering shorts only on the way down. I mentioned that we would need to closely watch price action this week to see whether or not that would indeed occur. Well, this week sure started out like gangbusters in silver and it appeared that we were indeed going to be watching a rather spectacular but rare occurrence. Monday morning silver shot up better than $0.80 and it looked like we were off to the races. Then it began to slowly fade closing up only $0.27 on the day and well off the high. The next day , Tuesday, the bottom fell out of the market after it again looked like it might be off to the races. It closed down $0.34 on the day and $0.84 off the session high. The shorts were unexplainably let off the ropes and given a new lease on life! It is through this day that the COT data is relevant.
> 
> That data is difficult to cipher because of all the wild price swings that silver experienced last week but particularly Monday and Tuesday of this week in which there was no doubt that many small spec shorts would have their heads handed to them after piling on a large number of fresh short positions last week. They paid dearly for that mistake and I do wonder how many a novice small speculator ended his or her trading career due to messing with silver this week. Regardless, the silver COT data shows the funds reducing the number of outright longs and adding to the number of outright shorts. The result was a reduction in their net long position of 3,300 contracts.
> 
> ...


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## MRC & Co (8 March 2008)

refined silver said:


> This is more detailed, but slightly harder to interpret if not used to them.
> http://www.cftc.gov/dea/futures/deacmxsf.htm
> 
> This has one form of charts
> ...




Excellent, cheers for that.


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## MRC & Co (8 March 2008)

As for the articles and the closing sentiments on silver, Im expecting a capitulation of the shorts, moreso than the longs holding their ground.

Inflation looks ready to really take off at the moment!  Just wait for new CPI figures to be relealsed later this month and gold is going to make its move IMHO.


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