A short squeeze in the silver market is pushing prices profoundly higher, the consequence of which could be felt for years.
All told, the month of June has witnessed silver rise by over 12%. But the truly aggressive price action began exactly a week ago – with a single-day move from $19.81 to nearly $21.
Short squeezes occur when short sellers close their positions with a heightened sense of purpose and haste.
Such behavior can cause prices to move sharply higher. That is, since closing a short position requires one to buy shares.
The increased buying – and subsequent higher prices – force other short sellers to close their positions, too.
Before long, a full-blown short squeeze has commenced, which is exactly what’s presently happening in the silver market.
Silver’s short squeeze, however, has far deeper implications than a short-term bump in prices.
Short squeezes oftentimes signal profound shifts in the underlying sentiment in the market, and sentiment is among the most unheralded contrarian indicators…
Extremely bullish sentiment is a warning signal that the market might be fully saturated, as in, there’s no one left to buy. So when sentiment is at/near all-time highs, the prudent investor will consider tightening his sell stops and taking profits.
Conversely, extremely bearish sentiment can signal a market ready to reverse. And when sentiment is at/near all-time lows, the prudent investor will consider some strategic buying.
I believe silver is experiencing such a sentiment shift right now.
AI
