Something To Chew On

by Turd Ferguson

After reading Trader Dan and Harvey, the gears started churning in old Turd’s head. I started thinking about open interest this late in the month. Started wondering about the last delivery month which was December. Then recalled the big post-Christmas rally that caught almost everyone by surprise. The gears kept grinding. I kept putting it together. Then I pulled up a daily chart and look what I found:

Now stay with me on this. You know that I’m a big believer in patterns. Not cycles, per se, but patterns. If I have any talent at predicting PM market moves…and believe me, thats a big IF…I owe that “talent” to the ability to notice patterns. In this case, its the pattern of the silver trade at the end of December and how it might relate to the end of March.

On December 19th, Harvey reported that the remaining OI for the December contract was still at 401 contracts, or about 2MM ounces of silver. As you can imagine, he was quite worked up by this. In the end, it didn’t matter as all of the patient longs were eventually served. Or did it matter, after all?

Go back up and look at the chart. Note that, after peaking at nearly $31 on 12/7/10, silver declined and consolidated for two weeks and closed on 12/21/10 at $29.44. It then went on that surprising, post-holiday rally that took it to a close of $30.99 on 12/31/10. Silver then peaked on the first trading day of 2011 and began a painful, four-week decline to Turd’s Bottom.

Fast forward to March, as we know its the next delivery month for silver. Today, with a basis of 3/18/11, Harvey reports that the March OI is still 898 contracts for a commitment to deliver of almost 4.5MM ounces. They’ll probably figure out a way to settle that, too, but that’s not the point. Take another look at the chart. Coincidentally (and you also know by now that I don’t believe in coincidences), silver peaked this month on the 7th, at nearly $37. It then declined and consolidated to rest tonight, two weeks later, right around $36.

So here’s my question for you: Do we sit tonight on the cusp of another 10-day UPswing like we saw in late December? The late month rise in December was slightly more than 5%. A similar move now would take silver from $36 to $38. I think you could also make the case that since the OI on March 20 is twice as high as it was in December 20, the corresponding late month move could also be twice as large. In that case, we could see $40 silver by the end of this month!

So there you go. Chew on that overnight. IF I’m right and all of the pundits and topcallers end up astounded by the amazing strength in silver over the next 10 days, I will gladly accept all the platitudes and adulation you wish to send my way.

Can’t wait for morning. Turd out.

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