1. Hi-Ho Silver!
For the third week in a row, Friday’s Commitments of Traders showed a net-short position in silver (week ending Tuesday 12/26). The last time silver had a net-short position was the week ending July 18th. In July, silver bottomed on the 10th and began a rally of $3 or 20%. Since bottoming on December 11th, silver has rallied about $1.50 or 10%. Friday’s session settled at major three-star resistance; a trend line from the September highs and the 200-day moving average. Since the CoT report is as of Tuesday, the short-covering rally likely began on Friday. However, we believe the rally is just getting started and to further support our belief we have a seasonal trade. If you have bought silver on January 5th and have held through Feb. 14, you have made money in 13 out of the last 15 years, averaging a gain of just about $1 ($5000 in a regular sized silver contract). For us, this seasonal trade aligns perfectly with a breakout above major three-star resistance and a run of the same distance as July’s.
2. Crude Oil
Crude famously reached a high on the first trading day of the 2017 and closed the session nearly $3 from there. Its selloff extended 8% and nearly $4.50 over six sessions. For the next month, the bulls positioned for crude to make a run at $60. They compiled a record net-long position of 405,328 contracts in February but never took crude higher. The January 3rd high was finally taken out on November 3rd. The bulls have been in complete control for more than two months, just as they were last year. Furthermore, pipeline outages in the North Sea and Libya have helped send prices higher. The bulls have amassed a near record net-long position through December and Friday’s Commitments of Traders shows it at 404,238, the highest since that February read. When it reached that height in February the market then sold off 14.5%. With both pipelines coming back on line this week we are looking for a similar setup to last year. If everyone has already bought, who is left to buy.
This is a big week for the currency pair with the euro finishing at the highest level since September. We have been outspoken euro bulls and we believe the September 8th high will be taken out in the first quarter. There’s no better way to start the year than with a session like Friday and a week like this ahead. From the United States, the FOMC Minutes from the December rate hike on Wednesday and Nonfarm Payroll on Friday. But there’s much more with ISM Manufacturing on Wednesday and ISM Non-Manufacturing on Friday. Also, Fed officials grab the horn Thursday and last through Friday. From across the pond there are reads on Manufacturing Tuesday morning, German and Spanish Unemployment Wednesday, Services Sector reads Thursday, German Retail Sales early Friday along with Eurozone CPI and PPI.