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Short Covering, Not Speculative Buying, Led to Silver's Parabolic Rise

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In futures markets, parabolic moves are often the result of short squeezes. This is exactly what happened in silver.

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Most mainstream pundits and reporters have assumed that it was speculative buying that caused silver to go parabolic. After all, it's always the dumb money or the public that gets in at the very end. However, in futures markets, parabolic moves are often the result of short squeezes. This is exactly what happened in silver.

Credit the great work of sentimentrader.com. The chart is below.



As you can see, both open interest and the speculative long position had been trending down. Both continued to decline during the parabolic move. When open interest falls but price rises, its a short squeeze. The same thing happened with cotton just a few months earlier. I don't place much time or emphasis on speculating about market manipulation or intervention but the COT tells us that the commercial traders (which includes JPMorgan) were covering. Typically, the commercials buy into weakness and sell/short into strength.

The low speculative long position is one reason why silver looks healthy in terms of sentiment. Going forward silver needs to define and establish support and then build a base before working its way higher.

Editor's Note: Jordan Roy-Byrne, CMT (aka 'Trendsman') is the proprietor of Trendsman Research. See more of his content at The Daily Gold.
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No positions in stocks mentioned.

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