NICKEL TODAY: Prices lift off the base, but likely to lack energy

Short term: Up
Medium term: Up
Long term: Up
Resistances:
R1 8,905 May 5 low
R2 9,028 DTL
R3 9,445 recent resistance
R4 9,595 late-Apr peak
R5 9,910 former support
Support:
S1 9,058 20 DMA
S2 8,995 May 18 low
S3
S4
8,905 May 5 low
8,700 Jun 2 low
S5 8,330 May 2016 low
Stochastics:
Bullish
Legend:

BB – Bollinger band
HSL – horizontal support line
SL – support line
MACD – moving average convergence divergence
DTL – downtrend line
UTL – uptrend line
H&S – head-and-shoulder pattern

Analysis

  • The extended downward trend appears to have found some support at $8,700 per tonne, basis three-month prices.
  • The turning point appears on the chart as a ‘hammer-shaped’ candle stick, which is often a turning signal, so there may be more room for the rebound to go.
  • We said in recent weeks that we expected a break from the $8,900-9,450 range to lead to more directional trading. With support giving way, that was the case, but in the short term prices look to want to work higher. We would look for initial resistance around $9,050 per tonne, which is around where the 20 DMA and a DTL are positioned.
  • If prices head lower again, we see likely support levels at $8,700, $8,330, $8,245 and $7,550 per tonne.
  • We wait to see if this sell-off has run its course. We think it may take a move above $9,450 per tonne to signal that it has.

Macro drivers
The policy U-turns in the Philippines and Indonesia have turned what was a bullish market into a bearish one.

LME stocks are edging lower again with stocks falling by an average of 1,299 tonnes per day (tpd) so far in June, compared with net inflow of 218 tpd over April and May.

SHFE stocks are also falling, see chart. They fell 1,684 tonnes last week and at 78,020 tonnes are down from over 110,000 tonnes in July/August last year.

Conclusion
Nickel prices have fallen in line with developments in the market. The price slide seems to have halted for now and prices are trying to get some lift, but they have yet to overcome the DTL or the downward sloping 20 DMA.

Fundamentally, it is difficult to be bullish for nickel until some bullish developments unfold. That said, short-covering and bargain hunting could give prices a lift outside of the fundamentals.

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