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Platinum Consolidation Offers Clues as to Future Price Direction

Platinum Consolidation Offers Clues as to Future Price Direction

2014-02-10 20:38:00
Research, Research Team
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As the platinum price downtrend pauses to consolidate, here are the key levels to watch as indicators of the precious metal's future.

Key Takeaways:

  • Platinum price is currently consolidating in a long term downtrend.
  • A break of the consolidation range will offer up a directional bias.
  • Traders might look to buy low, sell high in the current range or wait for a breakout to confirm a larger move.

In line with the majority of the precious metals, platinum prices had a rough start to 2013. From beginning of the year highs just shy of 1,750.0, the price per ounce of platinum collapsed to below 1,300.0, with the metal losing nearly one quarter of its value. From its lows, platinum regained some strength against the dollar throughout August and September 2013, rising to around 1,550.0. From this level however, platinum's price tumbled. Seven consecutive weeks of declines drove the price of platinum down to a little above 1,350.0, and it now sits just shy of 1,400.0 at 1,381.9. Will this longer-term downtrend continue, and if so, where will it end?

Platinum Price Daily Chart (XPT/USD)

platinum-consolidation-offers-clues-0006_body_Image12.jpg, Platinum Consolidation Offers Clues as to Future Price Direction

First, take a look at the daily chart above. The 200-day moving average illustrates the downtrend, with platinum's price dropping below its moving average in April last year and only trading back above it for an approximate total of two weeks since. After its most recent decline from just short of 1,475.0, the price of platinum is currently in a consolidation phase, ranging between historic support at around 1,370 and its 50-day moving average, currently at 1,388.1. A close above or below these two levels of resistance and support would offer up a medium term directional bias. If platinum price breaks below support, expect a resumption of the downtrend, with an initial target of 1,350 and, beyond that, long-term support dating back to the middle of last year at 1,313.0-1,315. Alternatively, if price breaks and closes above support, this could be an indication of a medium term upside correction. In this bullish scenario, look for a rise initially towards the 1,413-1,417.0 historic support/resistance. If price breaks this resistance, it could be indicative of a move up towards the 200-day moving average and historic support/resistance at 1,445.0-1,400.0.

Platinum Price 4 Hour Chart (XPT/USD)

platinum-consolidation-offers-clues-0006_body_Image13.jpg, Platinum Consolidation Offers Clues as to Future Price Direction

To get a better idea of exactly what is going on in the current consolidation phase, take a look at the four hour platinum price chart above. The range is highlighted, with price failing to close above resistance or below support since the end of January. Having dropped from resistance at about 1,386 early Friday, platinum prices closed out the day mid-range at 1,381.9. The assumption is that, even with a strong upside correction before Friday's close, prices will trade down to the lower end of the range before reaching resistance once again.

There are a number of ways to trade this sort of price action depending on personal style and strategy. Swing traders will likely wait until platinum price reaches the range limits and enter contrarian trades in expectation of a reversal. For example, if price reaches support at just above 1,370.0, a swing trader might place a long trade, with a target at range resistance of 1,387.0 or thereabouts. The reverse being true for a short trade from resistance.

Alternatively, breakout traders might wait for platinum prices to close above or below the range. For example, if prices closes above 1,387.0, a breakout trader might take this as a buy signal and enter long, with a target at a previously relevant level. In this instance, the trader's initial target might be at 1,404.0, a level that acted as support towards the back end of January. All said, the current ranging conditions might offer up nice range trading strategy entries, but look to the long-term daily chart once the range is broken for targets.

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