Very-short term (1M):   Up
Short term (3M): Up
Medium term (6M): Up
Long term (12M): Up
Resistances:
R1 1,400 Psychological
R2 1,436.50 record high
R3 1,450 

Support:
S1 1,324 20 DMA
S2 1.300 Psychological
S3 1,043 Oct 2 low

Stochastics:
Correcting
Legend:

BB – Bollinger band
D/WMA – daily/weekly moving average
D/UTL – down/uptrend line
ETF – exchange traded funds
H&S – head-and-shoulder pattern
HSL – horizontal support line
MACD – moving average convergence divergence
RSI – relative strength index
SL – support line

 


Analysis
  • A slow correction lower has started to emerge in the palladium market.

    With no immediate sign of higher highs from $1,436.50 per oz, some profit taking at this elevated level is understandable.

    This has also allowed its technical indicators, such as the daily RSI and stochastic lines, to unwind previously overbought conditions and edge lower.

    Palladium is attempting to build support from the rising 20 DMA and the metal prices could rebound again to a new higher high.

    Failure to do so could trigger more selling pressure in the short-term, with the August 2018 low UTL as the potential target of retest.
Macro drivers

Palladium’s tight fundamental backdrop has been well documented, but its price action now tells a different story. With the record high set, the metal prices have started to correct which imply that a great deal of the kneejerk reaction higher was a short-term surged that lacks conviction. Instead, one can conclude that it was a good run on stops among short-sellers who were forced to buy back their position. 

That said, the pullback remains in an orderly fashion, another sign that its price action is trying to find some equilibrium. Other macro-factor which pushed palladium into correction mode was also at play here, after the removal of UC Rusal sanction get the go ahead, alleviating previous concern that Russia could reduce palladium export. 

There is no update from Commitment of Traders Report (COTR) on the latest speculative funds positioning. Instead, the previous data that was dated December 18 showed that Nymex speculators remained friendly towards the metal, with its NLFP at 13,803 contracts, having recovered from its low point of 982 contracts seen in August 21. 

Fundamentally, higher global consumption of palladium in the midst of declining physical supply has exacerbated the bullish move. The metal set to secure another deficit at just under 240,000 oz in 2018, according to Johnson Matthey latest estimates. That said, world largest palladium producer – Nornickel’s November strategy update put a larger deficit of 1 million oz as the company projects long-term demand for palladium to remain strong, especially from the production of auto catalysts. 

Even though global automotive sales in 2018 faced strong headwinds, market participants do not expect further contraction in 2019 though the outlook does not imply significant growth either. Still, consumption of palladium metals will remain elevated and that will continue to provide the metal with underlying support. 

Conclusion
More selling has emerged this morning and pushed palladium price below the rising 20 DMA. A negative close today could give sellers that extra edge to target the 50 DMA. Setting a lower low (a breach below $1,200 per oz) may well be a start to a deeper corrective move in the coming weeks.



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