A Long Term Technical Pattern Takes the Guesswork Out of Palladium Prices
The price of palladium has traded within the confines of a classic technical pattern for the past seven months offering swing traders some nice, low risk-high reward entry points. Now it looks to be offering up another.
Over the last decade, the price of most commodities has been extremely volatile. As early 2000s rise, followed by a 2007-2008 collapse and another 2010-2011 rise led to many analysts referring to the commodities markets being in a "supercycle". The rise that came to an end early 2011 suffered an initial decline but has stabilized somewhat over the past two years. Looking specifically at Palladium, the price of the metal has trended gently upwards since the end of 2012 and, throughout the latter half of last year, has formed something of a drawn-out symmetrical triangle. Since the middle of January, Palladium prices have dropped considerably against the U.S. Dollar and traders are wondering whether such a rapid decline is indicative of further losses, or whether the support offered by the triangle will hold and instigate a reversal. What clues can we garner from the charts, and what will be the key levels to which in either scenario?
Palladium Price (XPDUSD) Daily Chart
Take a look at the daily chart above. The 200-day moving average illustrates the gentle uptrend, and the trendlines outline the symmetrical triangle. The first point of note is that price currently resides at the lower trendline, which has offered substantial support on a number of occasions through the past 8-10 months. From a swing trader's perspective, a valid assumption would be that price is due for an upside reversal from this level. A couple of other technical signals support this bias.
The first is the inside bar pattern (highlighted) formed over the past couple of days. An inside bar forms when the price of one or more sessions trades within the range of a previous "mother bar" session. Inside bars represent indecision in a market, and can often signal a pending reversal. The same pattern formed at the end of December last year just before palladium's price bounced from the triangle support (also highlighted). The key level to watch will be the high of the mother bar at 716.8. If palladium price breaks above this level, it will validate the pattern and suggest a rise up towards the triangle resistance at 740-750.00. To get to this level however, prices will have to break through the 200-day moving average, so expect some small-scale resistance around 720-725.00. As a side note, further supporting the upside reversal, the CCI indicator broke above the -100 level on Wednesday. A break above this level on the CCI indicator suggests palladium's price is leaving the oversold zone, and that traders can expect a degree of short-medium term upside momentum.
Looking to the downside, if prices breaks the low of the mother bar at 705.00 and continues to fall below the triangle's lowed trendline at around 700.00 flat, this could indicate bearish strength in the palladium market. A close below 700.00 would offer up initial downside targets at 650.00 and, below that, previous key support at 619-630.00. All said, the drawn consolidation in XPDUSD suggests that the market is yet to decide on a long-term direction for the precious metal. Swing traders might look to enter long based on historic price action, but longer term traders will be very aware of the metal's high price in comparison to its early 2009 prices below $100.
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