Originally published September 13th, 2009.

Human beings have a tendency to forget pain once it has passed, which is of course a good thing, but it is perhaps not so fortunate for many silver traders that they seem to repeatedly forget that silver has a marked tendency to drop much faster than it rises. Over the past couple of weeks silver has risen sharply into the zone of resistance shown on our 3-year chart as investors became excited about the prospects for a gold breakout to new highs, in the process becoming very overbought - critically overbought on its RSI indicator, factors which by themselves give grounds for caution.

Much more alarmingly for those long silver, however, is the way that the Commercials' short positions have ballooned dramatically over the past couple of weeks and they are likely to be even higher as these figures are only up-to-date as of last Tuesday's close, especially as silver continued higher into the end of the week. As with gold, a high Commercial short position in silver is construed as bearish and indicating that a turning point is close at hand, which here is quite understandable given the current overbought extreme. Keep in mind that the position could become even more extreme short-term if gold makes a new high soon, although as discussed in the Gold Market update, this could be a false breakout.

On the 6-month chart for silver there are several short-term bearish points to note. While moving averages are certainly in bullish alignment, silver is well into critically overbought territory on its RSI indicator, very overbought on its MACD and way ahead of its 50-day moving average. It is therefore reasonable to expect a reaction here or very soon, which could be heavy.