Thursday, March 22, 2012

The Daily Show- Gold and Silver Pre-COT Report Update

The Daily Show
-Marshall Swing
Today, I want to focus in on a single trading day that was the most devastating of the last week.  This past Tuesday where the price of silver dropped $-1.121 in relatively light overall volume and EXTREMELY light Open Interest movement.
All daily statistics come from the CME in a report that looks like this for silver:

(click link to enlarge)
And this for gold:

In the two pictures, notice I have highlighted the Most Active Month, in red, and the 2nd Most Active Month, in green.  Those are usually delivery months for metal and are the two most active months by volume.

What I do is summarize the information for you, for each day in the full reports and the end of this article, omitting volume and total Open Interest because they are not important to seeking clues about what transpired during the trading day to achieve the negative or positive trading result.

These technical clues can be very beneficial to a futures or options traders on the COMEX or ETFs like SLV and GLD.

Let’s look at just Tuesday, March 20th:

SILVER 3/20/2012


Close Price
Price Change


MostActiveMonth OI Change
2nd MostActiveMonth OI Change
All Other Months OI Change
Total OI Change
OI Contracts per $0.05 Change

Total OI

MostActiveMonth OI
2nd MostActiveMonth OI
Total Volume
MAM Total Volume
2nd MAM Total Volume

What we see here is that spot price for silver dropped $-1.121 from open to close of the trading day.  Notice in the second block all the large numbers for total Open Interest and Volume.  Those are big number, yes, but they do not tell the daily story.

The main story is told by the “MostActiveMonth OI Change”.  Here we see that a -255 contracts leaving the Most Active Month were responsible for dropping spot price by $-1.121 on the day.  And note that the total Volume for the Most Active Month was 55,169 contracts traded that day.

Doing a little math, (255 / 55169) = .0046, or just 0.46% of the total Most Active Month contracts (Less than ½ of 1 percent!) were traded out in some combination of longs and shorts to achieve a $-1.121 price drop.

Stunning, huh?

That tells us that the Bullion Banks were able to trounce the spot price of silver without even breaking a sweat.  Probably looked like a feint sigh, it was so easy!!

So what happened to the good guys that day?

Well, somehow, the Large and Small Speculators must have reacted out of fear and sold off a few longs that were defending the price.  Could be coupled with the Bullion Banks (Commercials) buying a few shorts at lower price.  Remember, spot price is a calculation of longs + shorts.

What actually happens, if you listened to the Ted Butler interview the other day, is that the Bullion Banks engage in day trading (trades that will be closed out prior to the end of the trading day) to artificially lower the price and scare the Large and Small Specs either to sell their longs or just into inactivity based on fear, as we see above, and then come in with contracts traded that will keep the price significantly lower that DO NOT CLOSE OUT before closing.

All things being equal, let’s say the spot price for silver is $32.  It takes some number of the Bullion Bank’s longs + shorts to defend that price of $32.  It also takes the Large and Small Speculators combination of longs + shorts to defend that price of $32.  Let’s say all the Speculators have an average price of $35 (longs + shorts in defending the spot price of silver in the Most Active Month.  That means the Commercial Bullion Banks must have an average price of $29 to balance out the Speculators and defend the spot price of $32.

($35 + $29)/2 = $32.  Simple math.

Next week, I will give you more of an idea of how this balancing act works.  It’s very complicated for the Bullion Banks, I have discovered.

These futures markets ARE rigged!!  Be careful when playing with paper!!

Otherwise, Happy stacking!


PS  As always, below are this past week’s COT period activity and the prior week’s COT activity plus Open Interest activity from the COT report, for your perusal.