Does The CoT Structure Prohibit A Rally?
Can the Comex metals rally from here given that the CoT structure is not yet fully "washed out"? Of course they can! While it's sometimes easy and obvious to assume that rallies are imminent by the CoT structure, history shows us that a fully-washed CoT isn't imperative for a bottom and rally.
Let's start with an example of a full wash, rinse and spin in Comex gold. Note the all-time lows of December 2015. That's as clean and washed as you're likely ever going to see.
| DATE | PRICE | COMMERCIAL NET SHORT |
| 12/1/15 | $1060 | 2,911 (ALLTIME LOW) |
| 5/3/16 | $1290 | 294,901 |
| 5/31/16 | $1210 | 214,038 |
| 7/5/16 | $1375 | 340,207 (ALLTIME HIGH) |
So, in this example, if you were waiting for a full CoT washout in May of 2016, you missed a $165 move in June.
| DATE | PRICE | COMMERCIAL NET SHORT |
| 12/27/16 | $1150 | 134,022 |
| 4/18/17 | $1290 | 211,064 |
| 7/11/17 | $1210 | 73,916 |
| 9/12/17 | $1330 | 272,098 |
| 11/14/17 | $1283 | 225,791 (range of 210,000-233,000 since 9/26/17) |
In 2017, the range of positions hasn't been as large but again, the CoT didn't need to go to net flat in July before a new rally could begin.
So, anyway, the moral of the story is...While we'd all like to have the CoT give us a clear indication of a bottom, it doesn't always do so. In fact, the CoT is far more useful at warning of TOPS than calling bottoms.
To that point, again note that THE ALLTIME HIGH in the Gold Commercial NET short position came on July 5, 2016 with price UP more than 30% from its bear market lows of just seven months earlier. Additionally, note that the price high of 2017 also came at the 2017 Commercial NET short high of 272,098. This was the highest Commercial NET short position since the CoT of October 4, 2016. And where was price then? $1280.
As this pertains to Comex silver, at TFMR we always pay attention to the Large Spec Net Long Ratio. This is derived by dividing the Large Spec GROSS short position into the Large Spec GROSS long position. History has show that anything below 2:1 starts to get bullish, near 3:1 is neutral and above 4:1 starts to get bearish.
As of last week, this ratio was 3.39:1. Some history:
| DATE | PRICE | LARGE SPEC NET LONG RATIO |
| 10/27/15 | $16.25 | 4.19:1 |
| 12/15/15 | $14.05 | 1.28:1 |
| 4/26/16 | $17.25 | 4.75:1 |
| 6/7/16 | $16.50 | 2.92:1 |
| 7/26/16 | $20.10 | 4.62:1 |
| 1/3/17 | $16.10 | 3.40:1 (Note this level, date and price) |
| 2/28/17 | $18.40 | 6.04:1 (ALL-TIME HIGH) |
| 4/18/17 | $18.30 | 5.24:1 |
| 7/18/17 | $16.10 off of $15.30 low | 1.12:1 (LOW SINCE 7/28/15) |
| 9/12/17 | $17.90 | 3.75:1 |
| 10/31/17 | $16.70 | 2.70:1 |
| Last week | $17.07 | 3.39:1 (Note same ratio as 1/3/17) |
Again, the point of laying all of this data on you is to dispel the notion that the only time the Comex metals can rally is IF AND ONLY IF the CoT has been fully washed and rinsed. As you can see, recent history proves that this is NOT the case. That said, any rallies that DO develop from here may be somewhat limited in size, strength and duration given the CoT neutral starting point.
Disclaimer: The views and opinions expressed in this material are those of the author as of the publication date, are subject to change and may not necessarily reflect the opinions of Sprott ...
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