Very short term (1M): Flat
Short term: Flat
Medium term: Up
Long term: Up
Resistances:
R1 1,993 Nov high
R2 1,996 Dec 2018 high
R3 2,000 Psychological
Support:
S1 1,889 20 DMA
S2 1,835 50 DMA
S3 1,725 Oct low
Stochastics:
Overbought

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
  • We have included a weekly chart to highlight the key horizontal resistance line that could set up the LME aluminium market for higher prices. A positive break and close above it could open the path to more gains (see chart), as was the case in mid-2017. 
  • When the price broke below the horizontal line late in 2018, the downward trend continued, setting a bearish tone. LME aluminium is looking to break above it to unlock more gains but this will be its first attempt. The chance of an initial rejection is rather high and there are bound to be false starts. 
  • But the bulls need not be disheartened. Any pullback here could potentially buy time for consolidate and regroup first before resuming higher (as shown in the above chart). 
Macro drivers
With the US presidential election risk event finally out of the way, LME fund managers has turned very bullish in the week to November 13. The positive narrative was further supported by a barrage of positive macro economic data out of China, which suggests a strong demand outlook, along with the positive vaccine developments of recent weeks.

A second consecutive week of buying raised LME aluminium's NLFP to a new high of 97,5113 lots as of November 13. Gross longs added 5,624 lots, which was partly offset by the selling of 1,124 lots.


Despite the extremely bullish speculative funds positioning, structural issues within aluminium remain, however. Chief among these is the lack of restraint among producers and a sizeable supply/demand surplus in 2020. So far, however, this has had only a limited impact on speculative bullish sentiment.

But in the short term, we have turned cautious about the price rise since physical business remains tepid and given an uneasy sense that prices may be moving too far, too fast and away from their fundamentals. Questions remain whether current levels are justifiable or sustainable.

Based on our technical assessment, we will stick with our previous conclusion and outlook. Although our long-term prognosis on LME aluminium remains bullish, we are somewhat bearish in the short term because the price is starting to look slightly extended on the upside. A pullback from recent highs to retest key technical support looks far more likely here due to a confluence of technical resistance.

Conclusion
Our short-term view towards LME aluminium remains bearish; the first attempt to break above the key horizontal resistance line identified above chart will cap gains, we feel. This could trigger consolidate in the coming weeks/months and should allow bulls to regroup first before attempting another run higher, as also outlined above.

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