Silver Commercials Hit Panic Button

The excitement never ends. Look at those banks getting their throats torn out today. It was a great day to be short. So what do the magical little numbers in the Commitments of Traders tell us about this mess? For newbies, this COTs stuff is the data on trillions of dollars of trader positioning issued weekly for free by the nice folks at the U.S. Commodity Futures Trading Commission. Check my updated table on the Latest Signals page for all the gory details. Here are some highlights:

- First, the ever-popular silver. After a nine-month bullish signal, my trading setup based on the COTs data flipped to bearish last week. That's because the "smart money" commercial traders hit the brakes and bumped up their net short position in silver futures and options to an extreme level that, in the past, has led to reliable selling opportunities. Last week, the commercials were 1.2 standard deviations below the moving average I use for this setup.

So what did they do in today's COTs report? The commercials are now even far more bearish - 2.4 standard deviations below the moving average. Oh-oh. Their net short position is more bearish now in absolute terms than since the July 24, 2007, COTs report, just before silver crashed 12 percent in the space of two weeks as the subprime meltdown kicked off. In relative terms, compared to past data, the commercial traders are now more bearish than any time since the end of Nov. 2006, just before silver fell from a high of $14.17 to $12.05 in the space of four weeks - a 15-percent drawdown. Needless to say, my setup is still on a sell.

- My trading setup for Canadian Energy iShares (XEG), which is based on trading on the same side as the commercial traders in crude oil, has flipped to bearish. Note that this setup works with a three-week trade delay, meaning execution would be for the open of trading on Monday, March 24. That, coincidentally, is also the date for execution of my bearish signal for crude oil, which is based on fading the large speculators. Meanwhile, my Oil Services Holders (OIH) setup, also based on the commercial traders, remains in bullish mode for the time being.

- Looks like March 24 will be a busy trading day for me since that's also the date for execution of my bearish signal for copper. Interestingly, this setup, based on trading on the same side as the copper small traders, just flipped back to bullish. Confused? Allow me to explain. The setup works with an eight-week trade delay. So what it's asking me to do is go bearish copper on March 24, then go back to bullish for the open of Monday, April 28.

- Gotta love that new setup for the BKX Bank Index, based on trading on the same side as the commercial traders in 3-month Eurodollars futures and options. What did my SKF UltraShort Financials gain today? Nearly 8 percent? Crazy. But alas, the setup flipped back to bullish last Friday, so with the one-week trade delay, that means I'm dumping SKF and going long on Monday's open.

- One more interesting market this week: the 10-year Treasury Note. The commercial traders, whom I follow for my setup for the note, have gotten steadily less net short since the setup flipped to bullish with the Dec. 24, 2007, COTs report. In fact, you have to go back to July 2006 to find a time when they were less net short as a percentage of the total open interest. That was around when the 10-year peaked at 5.2 percent and started a long slide down to 4.4 percent in Dec. 2006. In relative terms, though, the commercial positioning isn't quite at such a remarkable level. These guys were also this bullish in mid-January, just before the yield rose about 40 basis points - oops! - and before that in Jan. 2007, just before the yield fell about 40 basis points - good one!

Hope you have a good weekend, and check in next week for more updates and with any luck more newly revised setups. And, of course, your comments.