Silver Price At Secular Resistance With Extremely Bearish COT Report

Readers know that we have one objective in mind: analyzing prices and trends in an unbiased way.

With that, we see an extremely concerning development in the silver market. As the price of silver is hitting major (secular) resistance on its chart, the COT Report hits extremely bearish readings and sentiment becomes overly bullish. This is a very bearish setup. The question is not whether silver will correct, but how far the price of silver price will retrace.

Let us revisit our data points. First, the long term trend of silver is still down, no matter what overly bullish articles are telling lately. Yes, we are very close to a breakout, but it has not happened yet. The weekly chart which shows the long term trend makes that point. Silver is still in a downtrend, although it is attempting to break out.

There is one strong signal on silver’s price chart which is the fact it broke above its 90 week moving average (our long term trending average) as indicated with the circle. It certainly is a first sign of an attempt to turn its downtrend into an uptrend.

However, silver is hitting resistance right at a time when silver’s COT report is extremely bearish.

As the next chart shows, net positions of commercial traders have reached all-time highs! Net short positions of commercial traders are extreme, but the rate of change with which those positions were accumulated is the more important indicator, and, as seen on the chart, it has gone extremely fast. That is a very bearish sign, and we are convinced that the COT Report suggests silver’s rally is capped at current prices.

Moreover, sentiment has become too bullish. It feels like everyone, including mainstream media, believes that gold and silver can only go up. It has become too obvious. When everyone believes a market will head in one direction, the opposite takes places.

Readers should note that we focus on objective data points, not on our opinion. We believe that gold should play a fundamentally important role in the monetary system, and that everyone should own physical precious metals, but that opinion should not influence what we see on the charts, and, unfortunately, charts show an bearish setup.