Very short term (1M): Flat
Short term: Flat
Medium term: Flat
Long term: Up
Resistances:
R1 1,856 new 2020 high
R2 1,900 Psychological
R3 1,951 2019 high
Support:
S1 1,782 20 DMA
S2 1,725 Oct low
S3 1,702 100 DMA
Stochastics:
Rebounding

Legend:

BB – Bollinger band
Fibo – Fibonacci retracement level
HSL – horizontal support line
SL – support line
MACD – moving average convergence divergence
DTL – downtrend line
RSI – relative strength index
UTL – uptrend line
H&S – head-and-shoulder pattern


Analysis
  • LME aluminium put in a solid day on Friday October 9, taking out the September and January 2020 highs. More importantly, it registered a new 2020 high at $1,855.50 per tonne.
  • Based on the positive technical configuration, we believe there is more upside to be had before the end of the year, potentially with a target of the 2019 high of $1,951 per tonne. 
  • But we do not think the metal will move vertically towards $1,951 per tonne - instead, we envisage some form of consolidation en route (see chart). 
Macro drivers



We are generally pleased at how the LME base metals prices are holding onto most of the gains made since the March low. The consolidation in September was healthy retracement, with key support levels holding after being tested. Prices are rebounding strongly again, a classic sign that dip-buying has featured.

The base metals closed positively in the week to Friday, up 4% on average, which brought to an end two consecutive weeks of selling. LME aluminium made an important technical development, achieving a new annual high - this sets a bullish tone for the coming months.  

We wrote in our October 9 technical report that follow-up buying pressure was likely to continue, with overcoming the September high key to unlocking the January high. Since this has materialized, we now envisage upward momentum towards the 2019 high before the end of 2020.

Following last week’s selling, LME fund managers have bought into the recent price weakness. Gross longs added 5,894 lots, far outweighing the selling of 1,204 lots. This brings the net fund long position to 60,754 lots as of October 2, which is in line with price rebound. Rising prices should encourage bullish fund managers to increase their exposure here while gross shorts must reduce theirs.

Conclusion
LME aluminium has joined the rest of the base metals bar lead by reaching a fresh 2020 high. This is a key development, setting up the possibility of more upside in the coming months despite a less price-supportive fundamental backdrop.


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