At a time when investors discuss whether a V shape or U shape recovery might materialize in the financial markets, SP 500 is 12% away from its all-time highs predominantly thanks to central banks’ cash injection and governments’ support for the businesses. It is for these reasons that the non-commercial COT index for SP 500 has reached to its maximum limit of 100 level within the last three weeks.
While this is the case for SP 500 index, the commodities maintained their neutral bias and therefore reacted only marginally to the same positive news that stocks have reacted. From the silver perspective, the non-commercial COT index of silver has been hovering around 30s, suggesting that silver has found some buyers thanks to its golden peer in response to flight to quality.
Evaluating the COT index spread between the SP 500 and silver reveals that a potential convergence between the two is imminent. Looking at the gray line presented in the chart shows that the COT index divergence between the two is about to reach its regular high and then reverse back to its mean within the next few weeks.
Given these circumstances, short selling the SP 500 and buying the silver simultaneously might produce some handsome profits until early-mid June.