For the silver guys out there, you might want to check out this chart of the Commitments of Traders.

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Please note that the hedge fund net long position is the third largest on record.

Moderating that somewhat is the fact that the Commercial net short position, while very large, remains smaller than previous peaks. It is the largest in three years however.

Here is a chart showing the hedge fund outright long positions as a percentage of the total open interest. When viewed in this format it still remains quite large.

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In looking at the daily or short term price chart, you can see that silver ran right to $16.00 and then failed.

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It then moved lower finding support first near $15.25 and after that failed, at $15.00. That level gave way on Friday of last week which now sets up a test lower near $14.25 on down to $14.00.

What concerns me about this metal is the inordinately lofty level of hedge fund longs in a market that is showing some signs of breaking down technically on the chart.

From a fundamental perspective, I am hard pressed to find a reason to be bullish silver, given the still overall anemic growth rate of the global economy, especially that of China. While silver has no doubt benefited from gold’s move higher, as it piggybacked the yellow metal as a safe haven, if gold weakens further silver will be quite vulnerable given the sheer number of hedge fund longs packed into the market.

Downside support levels in silver pretty much come in at every .25 lower intervals. First $14.25, then $14.00, then $13.75, etc.

The metal has carved out a pretty good base down between $14.25-$13.75 so it is likely to hold down there but if for any reason it failed to hold at $13.75, given that hedge fund long position, it would be rather disconcerting to put it mildly.

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Notice on the RSI how silver managed to finally break above the 60 level in early February, something which it had not been able to accomplish for more than three months. that told us the bear market was over and that a bottom was likely formed. That silver went on to clear 70 was constructive. Now we are going to see whether this thing is real or not.

As price retreats, the RSI is now moving towards 40. Generally speaking, during bullish phases in a market, the RSI will stay above 40 and then turn higher again. If it does not, that throws into question the bullish view. That means a big test is coming up for silver next week.

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Also note that the +DMI of the ADX/DMI indicator is in danger of making a negative downside crossover of the -DMI ( red line) which is rising. If those two lines do cross, that would be a sell signal, especially if it was combined with a breach of 40 on the RSI.

We’ll see what we get but the resolve of those hedge fund longs is going to be put to the test next week.