PALLADIUM TODAY – Price correction continues

Dec 19, 2016 - 12:57 PM GMT
by
Short Term:
Medium Term:
Long Term:
Resistances:
R1 635.50 April high
R2 727 Oct high
R3 734 20 DMA
R4 776.50 Recent high
R5 747.50 Aug high
Support:
S1 734 20 DMA
S2 727 Oct high
S3 713 38.2% Fibo
S4 693 50% Fibo
S5 674 61.8% Fibo
S6 631 Oct 14 low
S7 611 Oct low
S8 570 June 08 high
S9 528 June low
S10 452 January low
Stochastics:Bearish
Legend:

MACD = Moving average convergence divergence
Fibo = Fibonacci retracement line
(H)SL = (Horizontal) support line
BB = Bollinger band
DMA = Daily moving average
H&S = Head-and-shoulder formation

Analysis

  • Spot palladium prices are correcting their October-December rally. Given that other precious metals have been trending lower, it did look as though the elastic band got over-stretched.
  • The stochastics are falling fast so we expect the correction to continue for a while longer. The 61.8% Fibo is at $674 per oz; the UTL is at $641 per oz.

Macro factors

The rally in palladium was quite remarkable considering the other precious metals had fallen so far. But with other industrial metals and equities doing well, it appeared that palladium prices had broken their anchor to gold.

ETF redemptions continue and funds cut their exposure slightly last week, reducing their net long position by 485 contracts. This ended five consecutive weeks of buying duting which the net long fund position climbed to 15,624 contracts from 4,969 contracts as of November 1.

The market may start to get nervous about the likelihood that China removes its tax incentive on sales of small-engine cars at the end of the year. Chinese car sales having been booming in recent months at an unsustainable pace so we should brace for weaker sales in 2017.

Conclusion

Palladium looked out of sync with the other precious metals so we are not surprised prices are correcting. We would, however, expect good underlying support around $650-675 per oz.

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