PALLADIUM TODAY – New 2016 price highs but looking overstretched

Dec 1, 2016 - 11:50 AM GMT
by
Short Term:
Medium Term:
Long Term:
Resistances:
R1 521- 524 Former support
R2 544 50% Fibo Jan-Apr
R3 554 DTL Sep 2014
R4 573 Dec 2015 high
R5 606 Mar 23 high
R6 626 200 DMA
R7 618 Apr 2016 high
R8 715 20 DMA
R9 727 Oct 3 2016 high
R10 724-729 Former spike lows
R11 747 High Aug 10
R12 803 High May 2015
Support:
S1 682 50% fibo 2014>2016 drop ($911-452)
S2 663 38.2% retracement Jun>Aug rally
S3 683 100 DMA
S4 675 40 DMA
S5 715 20 DMA
S6 637 50% retracement Jun>Aug rally
S7 635 Apr 2016 high
S8 645 UTL Jan/Feb lows
S9 611 61.8% retracement Jun>Aug rally
S10 554 DTL Sep 2014
S11 530.50 Feb peak
S12 452 2016 Low
Stochastics:Converging in high ground
Legend:

MACD = Moving average convergence divergence
Fibo = Fibonacci retracement line
(H)SL = (Horizontal) support line
BB = Bollinger band
DMA = Daily moving average

Analysis

  • Palladium has extended to a fresh 2016 peak at $776.50 per oz today – funds and speculators continue to embrace riskier assets.
  • But the longer upper shadows on the recent daily candlestick formations suggests buyers are having to absorb persistent overhead selling pressure.
  • After climbing $150 or 24% over the past month, the metal is looking somewhat overstretched – the RSI at 76 looks overbought. The stochastics have also converged in high ground.
  • Immediate support is seen around $740 per oz from the August and mid-November highs.
  • The 20 DMA has moved up to $715 while additional support is seen between $675 and $683 per oz, where the 100, 55 and 40 DMAs are clustered.
  • Resistance above is seen at $780-830 from October 2014-May 2015.

Macro factors

Despite the gain, investor sentiment remains negative – rising prices continue to trigger pockets of ETF liquidation. Holdings now total 1.89 million oz, down 1.2 million oz or almost 40% from their peak of 3.096 million oz in August 2014.

The global palladium market will record a 651,000-oz deficit in 2016 compared with the 843,000-oz deficit forecast previously by Johnson Matthey. It sees total supply rising 1% to 9.03 million oz – a near-10% rise in recycling volumes will offset static mine production. Palladium demand from the autocatalyst sector is set to increase 2% to 7.8 million oz, fuelled by growth in sales of gasoline-powered cars. JM forecasts another year of substantial deficit in 2017 – demand will continue to outstrip growth in supply despite rising supply from recycling volumes.

The latest round of vehicle sales results continue to signal rising underlying PGM demand. Chinese passenger vehicle sales continue to record strong growth, rising 20.3% year-on-year in October, according to the latest figures from the China Association of Automobile Manufacturers. Sales totalled 19.1 million vehicles in the first ten months of the year, up 15.4% on January-October 2015. Passenger vehicle sales in Europe were up 7.2% in January-October. But the latest US figures show signs of fatigue, with sales down 0.2% year-on-year in the first ten months.

Palladium’s fundamentals will continue to improve – fallout from the Volkswagen ‘Dieselgate’ scandal will lead to a shift away from diesel-powered vehicles in Europe. Carmaker Renault recently suggested diesels could disappear from most of its European car range.

Conclusion

We still favour the upside while funds and speculator remain on the bid. But given the gains seen already and with the market looking somewhat overbought on the charts, palladium would benefit from a correction or some consolidation before making a sustained push above $800 per oz.

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