PALLADIUM TODAY: Eyeing fresh highs again

Apr 4, 2017 - 12:18 PM GMT
by
Short Term:
Medium Term:
Long Term:
Resistances:
R1 815 Mar 23 high
Support:
S1 780 20 DMA
S2 772 50 DMA
S3 749 100 DMA
Stochastics:
Legend:BB – Bollinger band

DMA – daily moving average

DTL – downtrend line

Fibo – Fibonacci retracement level

H&S – head-and-shoulder(s) pattern

RL – resistance line

RSI – relative strength index

SL – support line

UTL – uptrend line

Technical Comment

Analysis

  • Palladium prices continue to consolidate from recent gains, having found technical support from the December 2016 low UTL (see daily chart).
  • The pullback has been mild and the metal is trading well above all the key moving averages. As such, its technical configuration indicates that bulls are still in control.
  • However, the current rally runs on a negatively diverging daily RSI which warns that the bullish momentum is running on borrowed time. We feel it could continue to diverge while palladium prices continue to edge higher. But it will take either a technical and/or fundamental trigger to potentially unleash the pent-up selling pressure.
  • Meanwhile, the stochastic lines have already turned lower and it is likely to take both the fast and slow line to bearish territory as selling interest picks up a notch.
  • Against such technical backdrop, we will remain cautiously bullish and will not be surprised to see prices to continue edging higher before a corrective sell-off occurs.

Macro drivers

Global vehicle sales growth remains buoyant this year which supports the stronger consumption of palladium used to produce emission control devices. Both European and Chinese sales enjoyed strong growth in 2016, with sales of passenger vehicles in the two markets surging by 6.8% and 13.7%, respectively. The robust macroeconomic conditions into 2017 has remain favourable for global demand for industrial metal, such as palladium, to maintain its bullish momentum. But there is real concern over the decline in US sales numbers as well as lower forecasts of sales growth at only 5% in China and 1% in Europe.

A significant risk-off events could unravel the strong run-up in palladium prices, we feel. Nonetheless, the global palladium market remains in structural deficit. As such, it continues to bode well for prices to remain elevated and has the platform to advance higher given the strong global demand for palladium from the autocatalyst sector.

Nymex speculators maintained their bullish outlook towards palladium as fresh selling of 598 contracts fails to offset fresh buying of 2,965 contracts. Its net long fund position (NLFP) rose for the second consecutive week.

On the ETF front, investors added 1,524 oz and took net holdings to 1.56moz as of April 3.

Conclusion

So far, palladium has been the best performing metal out of gold, silver and platinum. Its robust price action and bullish fundamental backdrop has set the metal apart as it advanced to a higher high within the uptrend channel formed since the January 2016 low.

We remain friendly toward the metal but cautious that any trigger of a corrective sell-off could put the bullish conviction under immense pressure.

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