Regular readers know that I generally have little use for the “traders” in the precious metals sector, and even less respect for “technical analysis”. Trading in markets such as these is simply pure gambling. All technical analysis is based on a long list of assumptions, all of which must be true, or the technical analysis is invalid.
At the top of that list are “free and open markets” and “perfect information”. Obviously our absurdly rigged markets are the exact opposite of “free and open”. Our propaganda-saturation is the exact opposite of “perfect information”. Thus technical analysis is simply another fraudulent tool to lead the Sheep around by the nose.
That said, there is one trader/technical analyst for whom I have a great deal of respect: Dan Norcini, noted most widely for his superb, long-time contribution to Jim Sinclair’s site, and now with his own blog. What I respect so much about Norcini is that he is not a slave to T/A. Rather, he explains what the technical indicators are saying at the moment (for whatever that’s worth) and then generally lays out both a bullish and bearish scenario.
In other words, rather than simply trying to “handicap” the market for gamblers (which is what 99% of the T/A jockeys do); Norcini explains the price-action to readers. Equally important, Norcini studies and understands the fundamentals of the market – and ultimately places emphasis on fundamentals over price-action (as all commentators should).
Thus I was very interested to listen to Norcini’s comments in an interview on Friday. Along with general statements that Norcini saw the current set-up in the bullion market to be very supportive (potentially) for a strong rally, he specifically noted two things: hedge-fund operators currently had (collectively) their smallest “long” positions in the gold market since December 2008 (the very bottom of the bullion market), and their largest “short” positions in the silver market in the 5+ years that Norcini has been keeping track of their trading.
The silver short position in particular is of great significance because the silver market is both much smaller than the gold market and even more depressed at the moment. Those two factors in combination with this gigantic short position mean that we can think of the silver market as an extremely tightly-coiled spring. When the silver market blows through the current trading-range (and blows the shorts out the water) we could very likely see the biggest/strongest rally in the silver market in this entire bull-market to date.
Note what I have stressed in other writing recently: this should not be seen as the “green light” to go and do some gambling of our own in the silver market. Over the short term, prices can always go lower before they go higher – it just means the subsequent bounce will be even bigger/stronger.
Never use margin/leverage in your investing.