The Curious Case of 36

One of the interesting aspects of running a blog like this is the amount of really interesting email I receive. All day and night, regular folks send me links and research reports and it is all very much appreciated. However, since my "popularity" sprang from my involvement at ZeroHedge, I occasionally receive emails from folks claiming to be "connected" and "in the know". The relative anonymity of the internet makes it impossible to tell rumor from fact and fantasy from truth. However, there are occasions when the email note seems authentic. I received one such note last week. The author, whom I'll describe simply as a prop desk trader at a major tbtf bank, informed me that it was his/her understanding that there really is a major player with a significant derivative exposure above $36 in silver. In his/her opinion it is not The Morgue with the position but someone or something else. Again, whether or not this is true, I have no idea...but...in light of all the price action centered around that number for the past week, one has to wonder what the heck is going on.

Here's an hourly chart of May silver. Note what appears to be aggressive selling between 36.20 and 36.40. By aggressive selling I mean you should notice that in 5 stabs into that area, the price was, on each occasion, beaten back toward the 35.60 level in under two hours. It takes a lot of money to move price that much, that quickly, whether UP or down. To have it happen 5 times in 5 days makes coincidence unlikely and, as you know, I don't believe in coincidences, anyway.

The gold chart has a similar look. It seems to run out of steam right around 1435.

In the end, I can't say for sure what all of this means, if anything. Maybe the PMs are simply rangebound and there is some big money in the pits trying to profitably trade the range. Maybe the huge, trapped short is betting its life on supplying unbacked paper silver to the market in the hopes of capping price. Either way, it presents some trading guidance. If silver breaks down through 35.60 and gold through 1420, the big short (if there is one) will have likely bought themselves some more time. However, if we break higher through 1435 and 36.60, the short (if it exists) could get squeezed really hard and both PMs could rapidly accelerate higher.

Its definitely worth watching these important levels as we head through this crazy, crazy week. TF