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Monday, February 11, 2013

The Invisible Influences All Participants

Good observations, Thomas, but the only opinion I follow is the message of the market.

Many conclude that the commercial traders must be the often cited "invisible hand."  Don't jump to this conclusion.  The actions and intentions of the invisible hand is defined by all money flows within the future and options markets. It's influence can be either direct or indirect; one of the highest forms of 'control' is managing of the trend through the influence of other people's money (OPM).  In other words, no direct, traceable intervention.  This invisible hand is very good at triggering 'event' within concentrated markets.  The commercial, reportable, and nonreportable traders all define the intentions of the invisible hand.  The diffusion indices attempts to quantify and anticipate these intentions.

Insight readers already know from previous discussions that silver is lagging gold.  As the bullish setup in gold intensifies, the stragglers have a choice;  (1) exit their shorts in a controlled, discrete manner, or (2) let market forces carry them out the front door on a stretcher in full public view.  The former is preferred, while the latter is not.  And, just because something is preferred doesn't necessary mean it will happen.  For instance, the invisible hand dragged a large contingency of stragglers out the front door in early 2006 when silver rallied from $8 to $14 (chart - red circle).  It's likely that only 'Buffett's timely liquidation' prevented a complete upside rout.

Bottom line, be careful with generalizations and concepts such as commercial signal failure.  Markets are not only driven by concentration of money flow but also TIME.

As of right now, gold is dominating the setup that silver will follow under any outcome other than a financial panic.

Chart:  Silver London P.M Fixed and the Silver Diffusion Index (DI)


Hi Eric,

According to the latest silver COT data for the week of february 5th, the commercials, which I suppose is the invisible hand or the gorilla, have been piling on shorts for the third consecutive week and their net short position appears to be almost as big as in the beginning of october when the A wave advance made its crust although the silver price is four dollar lower now.

Although we have seen powerful whipsaws in the silver price since then it seems the commercials have not been able to cover much of its short positions. Compared with the decline from march 2012 to july 2012 they caused a much bigger decline with a smaler net short position then they have today which they were able to cover until july.

Do you think that this signals that either the silver price has some additional downside or that the commercials are having increasingly difficult to suppress the price and that finally there might be a commercial signal failure and that the invisible hand fails to suppress the price and will have to yield to market forces.

Kind regards,

Thomas


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