| Short Term: |  |
|---|---|
| Medium Term: | |
| Long Term: |  |
| Resistances: | |
|---|---|
| R1 | 724 Oct ’15 high |
| R2 | 735.97 61.8% Fibo 2014 high to 2016 low |
| R3 | 749.50 Current high |
| R4 | 780 June 2015 high |
| Support: | |
|---|---|
| S1 | 635.50 May high |
| S2 | 707 50 DMA |
| S3 | 633.50 20 DMA |
| S4 | 533 April low |
| S5 | 523.50 May low |
| S6 | 480 February low |
| S7 | 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
- Palladium’s current rally resembles the uninterrupted June-August vertical price move (see daily chart).
- Without any sign of a reversal, buyers are very much in control.
- Also, judging by the daily candlesticks, dips are being bought – the metal should remain well supported in the short term.
- The daily RSI has entered overbought territory but this does not mean that prices are ready to tread lower yet although there is a risk of a short-term pullback.
- As long as palladium can keep its positive momentum, the stochastics are likely to stay bullish.
Macro drivers
On the speculative front, palladium’s net long fund position (NLFP) climbed for the second consecutive week to 9,130 contracts via fresh buying of 1,015 contracts and short-covering of 1,830 contracts. The gross short position is at its lowest this year at only 4,807 contracts as of November 15 – it looks a little overstretched on the downside. Without any clear indication that money managers are rebuilding their net short positions, palladium may be able to keep its bullish momentum going for now.
Higher palladium prices have encouraged further disinvestment among ETF investors. The recent strength in the dollar may have also played a key part in boosting palladium prices in other currencies. Weakness in the Canadian dollar sent palladium prices to 997.40 per oz – a fresh 2016 high. Palladium also registered an all-time-high at 10,520.50 in rand terms. According to our records, the largest drawdowns were unsurprisingly from NewPall ETF and AfricanPD, which tracks palladium in the rand.
According to Johnson Matthey, the palladium market faces a record deficit of 651,000 oz this year. Autocatalyst demand is likely to dominate and set a new record at 7.84 million oz while production of palladium will be flat. Given such a positive fundamental backdrop, palladium prices should remain well supported – growing demand will set the tone for higher prices, we feel.
Conclusion
Robust price action has set palladium apart from the other metals that are prone to a strong dollar. For now, it only seems to is going in one direction.
Based on the bullish technical set-up and positive fundamental conditions, we continue to believe that palladium prices are undergoing a 5-wave rally that is likely to end with a fresh 2016 high.
Meanwhile, we are cautiously bullish about this three-week rally and will wait for a reversal candle to reassess our stance.
