PALLADIUM TODAY – Better manufacturing data underpins prices

Short Term: Medium Term: Long Term: Resistances: R1 652 100 DMA R2 665 20 DMA R3 724 Oct ’15 high R4 747.50 Current high R5 735.97 61.8% Fibo 2014 high to 2016 low Support: S1 635.50 May high S2 533 April low S3 523.50 May low S4 480 February low S5 452 January low Stochastics: Legend: UTL = Uptrend line Fibo = Fibonacci retracement level RSI = Relative strength index D/MMA = Daily/monthly moving average (H)SL = Horizontal support line H&S = Head-and-shoulder formation Technical Comment Analysis After failing to break above the August high at $747.50, palladium set a lower high in early October at $727. It has since been locked in a downward expanding channel. Technically, it has found support off the lower channel, which also coincides with the 61.8% Fibo. As well, this is a zone where interest among dip-buyers could pick up again. But its daily RSI is still in oversold territory but it may have the momentum to edge higher if there is follow-up buying. Also, the stochastic fast lines have crossed above the slow line, which should provide the platform for buyers to re-enter.   Still, there is nearby overhead resistance that palladium must overcome before unlocking further upside. The 100 and 20 DMAs constitute the first ceiling that may keep prices under pressure. Should it break above the 20 DMA, buyers may have more confidence to push higher. Macro drivers The Association of Mineworkers and Construction Union (AMCU) has reached an agreement in principle with South African platinum miners over wages and working conditions. While details are scarce, the overall tone has been constructive, suggesting that strikes have been averted, minimising any concern about potential disruptions. At the macro level, forecast-beating manufacturing numbers from across developed economies has boosted risk-on sentiment. This lent support to industrial metals by alleviating the recent selling pressure but the firm dollar index has kept the rally in check. Also, palladium’s net long fund position (NFLP) has dropped again, falling 2,937 contracts to stand at 9,502 contracts as of October 18. Longs liquidated 3,249 contracts while gross shorts reduced their position by only 312 contracts. Surprisingly, gross shorts were not bold enough to rebuild their relatively low exposure. But gross longs continue to run the risk of further liquidation, which may dampen the upside in palladium prices. On the ETF front, falling palladium prices triggered strong disinvestment. While the outflow has eased somewhat, there is no sign of buyers yet. Holdings were was last at 2,030,073 oz as of October 24. It has some catching up to do on the rest of the precious metals. If investors start to rebuild their holdings again, palladium prices could return above $600 per oz for the rest of the year. Conclusion It remains to be seen if palladium can maintain the recent rebound in prices. Technically, it has a lot of ground to cover before the bulls can be confident again. Sellers are still in control and, judging by the reduction in gross long positions, the path of least resistance is lower. Also, easier expectations about supply tightness may limit the upside in palladium prices, at least in the short term. All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.

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