Hi Casey!

This is what I was talking about on Friday. I think we are in the midst of a short squeeze. Plenty of dummies make mistakes on both sides of the trade, and right now it is the shorts that were irrational and over-extended for many junior mining shares. The same guys that were laughing the hardest at the concept that silver could continue to levels above $50 in the short term are now the biggest fools for believing the spin that silver could drop below $20 in the short term. Look at the performance of the entire sector over the last 6 weeks. Sure a lot of longs were dumping positions and fleeing the sector, but a lot of new shorts were laid on too over that time frame. There are entire ETFs that are specifically set up to short the hell out of mining stocks and money flowed into those structured products just as freely as the money piled into long baskets to bet on juniors in the boom phases.

The big money is able to make some phones calls and collect favors to swing block trades and crosses. The smaller players are left standing when the music stops. It has always been that way.

I look at some of the huge upside moves today for many stocks in the junior mining sector, and the gains far outpaced the relatively sedate performance for the metals. This is the shorts buying at market to close out positions on a frantic basis, IMO. I would think ECU was one of the short plays given the volume of bearish nonsense that has been distributed on so many websites. Perhaps now with some of that short overhang unwinding we are beneficiaries to the upside.

I have never believed the published short statistics. I think shares can be shorted in overseas markets and not show up in the TSX data. I think units of ETFs are shorted completely unbacked by actual shares of the component weighted baskets. I also think some games are played where players buy the traded warrants and short the common, and this has contributed to the weakness of the stock relative to long dated warrants outstanding. I think independant players run a daisy chain when stock is 'bought' to cover a reported short by taking down an equal short position from a different company, specifically to distort the published and documented outstanding short interest at the reporting deadline.

I also believe firms are negligent in not reporting that their actual net ownership position in many stocks on behalf of clients is a fraction of what has been purchased and represented in client statements. The deficit is from FTD transactions that are quietly covered up in the same way that AIG was writing obligations to cover losses far in excess of any liquidity they could muster when called upon. The industry appears to believe its not a problem until its a problem, and then its other people that are screwed or else the taxpayers on the hook for yet another bailout.

So yes, forgive this long rant, but I do think the actions today are just a continuation of rollover as players cover shorts. It may be a short term squeeze, or it may be a widespread factor as new longs are established. Going forward we need to see the text from the FOMC meetings this week, clear the usual COMEX op-ex yardsale, and perhaps see some chatter that the latest fix on the European sovereign credit issues has traction. If so, then its a good bet the rebound in the mining stocks will happen a lot faster than many people believe possible.

I am not willing to rule out a head-fake and watch the shorts pile on from a higher level once again if the rally runs out of steam. I sold half my trading position in ECU for a profit after holding through the downturn, and I am still very happy if the stock breaks out from here. Otherwise I will buy back on the downside again and await the drilling results from the MS zone whenever they are released.

cheers!

mike