Silver ready for upside swing based on COT, 15.04.2005

Silver has been under pressure the past week, like gold and the upper boundary for the long term down trend channel for the USDX. 

Today silver closed at exactly $7.00. In the past three sessions, we have seen several minor 'attacks' at the $7 level with no major break towards the downside.

The power up-trend line established this year has held so far. If it breaks, I believe we have firm support at the $6.70 area. 

(Chart courtesy of StockCharts.com)

COT analysis

The COT structure has improved slightly from a week ago, IMO. The major change is sublte and can escape unoticed quite easily. I believe the commercial long position at 25761 contracts on Aril 12th (thin brown line) to be a bullish sign, along with a comparatively low commercial short/long ratio (blue line). Commercial longs have only been at this level twice before in the past year (June 2004 and early 2005) , and then it preceeded a strong price move to the upside. All three ocasions where commercial short/long ratios have been at todays levels have also preceeded rather strong swings to the upside.

A closer look at the previous times that the commercial short /long ratio (blue line) has been below 4 during the past year show us a clear trend: Markets bottom when the commercials are 3-4 times more short than long, but the bottoms are shifting higher and higher. 

At some point reading the COT charts based on recent history will fail, but I don't think that time is now. With the non-commercials at comparatively low long levels and commercials at comparatively high long levels (even though significanlty net short), I believe we are quite close to a swing to the upside, for silver and the major triangle formation discussed last week will be resolved to the upside.

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