Palladium Technical Analysis
Eric De Groot | Feb 03, 2016 01:35AM ET
Cheap banks loans, falling oil prices, and economic growth have supported a rising trend in automobile sales since 2009. This trend has been boosting demand for raw commodities used in the production of car from aluminum for body sheets, rubber for tires, steel for chassis, to palladium for catalytic converters. While a fair number of experts remain bullish on palladium, they likely do not recognize economic deterioration throughout the global economy and a probable transition within the business cycle from prosperity to liquidation by 2016. This transition would be bearish for automobile sales and commodities used in their production.
Investors, largely driven by emotions rather than discipline, tend to focus on volatility rather than the message of the market. This tendency prevents them from recognizing better opportunities in quieter markets.
Summary
The BEAR (Price) and BEAR (Leverage) trends under Q1 accumulation as seasonal high approaches on the first week of March position palladium as a weak bull opportunity. The transition of Price and Leverage trends from BEAR to BULL upgrades the bull opportunity.
Price
Interactive Charts: Palladium
A positive long-term trend oscillator (LTCO) defines down impulse from 75.29 to 47.58 since the third week of August 2014 (chart 1). The bears control the trend until reversed by a bullish crossover. Compression (white circles) within the CEC cycle generally anticipates this change.
A close above 88.10 jumps the creek and returns the trend to mark up. A close below 42.65 breaks the ice and transition the trend from cause to mark down. .
Chart 1
Leverage
A positive long-term leverage oscillator (LTLO) defines a bear phase since the second week of November (chart 2). The bear phase focuses the down impulse (see price).
A diffusion index (DI) of 76% defines a bullish setup and Q2 accumulation (chart 3). A capitulation index (CAP) of 63% supports this message (chart 4). DI and CAP's trends, broader flows of leverage and sentiment from extreme accumulation (green dotted line) to distribution and extreme fear (green dotted line) to complacency supporting the bulls (red arrows), should not only continue to extreme concentrations but also restrain downside expectations until reversed (see price). Continuation of the decline under these trends, a sign of weakness (SOW), would be bearish for palladium longer-term.
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Chart 2
Chart 3
Chart 4
Time/Cycle
The 5-year seasonal cycle (red series) defines strength until the first week of March 2016 (chart 5). This path of least resistance restrains downside expectations (see price).
Chart 5
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