PALLADIUM TODAY: Holding up, but vulnerable

Short Term:
Medium Term:
Long Term:
Resistances:
R1 773 20 DMA
R2 776.50 Dec high
R3 797 Jan 2017 high
R4 833 HRL
R5 911.50 2014 high
Support:
S1 773 20 DMA
S2 763 Recent support
S3 711 Jan 27 low
S4 687 UTL
Stochastics:Bearish
Legend:

BB – Bollinger band
DMA – daily moving average
Fibo – Fibonacci retracement line
H&S – head-and-shoulder formation
(H)SL – (horizontal) support line
MACD – moving average convergence divergence
UTL – uptrend line
HRL – horizontal resistance line

Analysis

  • Prices are rangebound below the January highs – dips attract buying, but there seems a lack of buying pressure to push prices abaove $800 per oz.
  • This suggests there may be scale-up producer selling ahead of $800 per oz.
  • The long-term chart (see inset) shows a band of supply running up to $833 per oz, which prices are working their way through now. 
  • Since palladium is one of the thinner metals markets, prices may well continue to oscillate higher, but lack of upside progress in recent months could prompt to a sell-off.
  • The stochastics are bearish for now so more more consolidation seems likely. But given the large price swings, another sell-off cannot be ruled out, especially as prices are trading either side of the 20 DMA.

Macro factors

ETF investors showed renewed interest in palladium in mid-February. Holdings stand at 1.543 million oz, up from 1.522 million oz, but they are still down from a high earlier in the year of 1.715 million oz. This seems strange given the bullish price action but it does mean there may be some catch-up potential.

The funds trading on Nymex reduced both their long and short exposure last week but not by much: longs cut 137 contracts and shorts cut 113 contracts. Still, there is little sign of scale-up shorting despite the high price, while the longs have been both buying and selling in recent weeks. The gross long position at 20,313 contracts is, however, more or less in mid-range compared with where it has been over the past few years at 12,824-26,460 contracts. While the gross short position is low, there is potential for the gross long position to climb.

 

Conclusion

For most of 2016, palladium’s bull market has followed a choppy path that has involved some large pullbacks along the way; this pattern seems to have rolled into 2017 too. Until recently, better economic data pointed to a stronger demand outlook but the poor Chinese auto sales data for January may well dampen the outlook for demand from the auto industry. This evening, we will get an update of US February auto sales too. We are not overly bullish at these levels but we expect dips to be well supported. The market could get more bullish again if ETF investors start to get more involved again.

All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.
Kathleen Retourne

About Kathleen Retourne

Kathleen has been reporting on commodity markets since 2006. She joined FastMarkets in 2011 and has immersed herself into the metal industry, specialising in LME coverage. Follow her on twitter @kathretourne