An interesting situation is forming in silver as sentiment plumbs the lowest levels of the year and futures positioning reaches extreme levels not seen since January 2016:
Silver Daily Sentiment Index (DSI)
The DSI on silver is at 9, its first trip into single digit territory since December 2016 - after last reaching single digit territory on the DSI silver would go on to rally ~$2.50/oz over the next three months before running into resistance near $18.50/oz.
Silver Futures Positioning
We're seeing multiple extremes in silver futures positioning occur simultaneously as managed money (hedge funds, CTAs, etc.) have moved to a virtually flat positioning after holding a ~100,000 contract net long in April. In addition, swap dealers (banks) who typically hold a robust short position have also moved flat after covering nearly 50,000 contracts short since April.
This is the kind of sentiment and positioning which bottoms are made of. There's only one problem with calling a bottom in silver here, the chart...
Silver 'flash crashed' on Thursday night, reaching as low as $14.34/oz before recovering most of its losses. The problem is that silver remains in a clear downtrend with very little sign of concerted buying interest. Moreover, just as we saw in the original flash crash (May 2010) these 'crash' lows have a mysterious way of being retested. As a rule, crashes (even the flash variety), occur in weak market environments (downtrends). There isn't enough evidence to proclaim a bottom in silver, yet. However, the stars are aligning for what could be a monumental buying opportunity very soon.
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