NICKEL TODAY – Bear flag triggered – more price weakness possible

12th September, 2016 10:54 AM by

Short Term:
Medium Term:
Long Term:
Resistances:
R1 9145 June high
R2 9480 March high
R3 10785 October 2015 high
R4 10119 20 DMA
R5 10302 50 DMA
R6 10900 Current high
Support:
S1 9601 100 DMA
S2 9700 May high
S3 8245 April low
S4 8100 January low
S5 7550 February low
Stochastics:
Legend:UTL = Uptrend line

DTL = Downtrend line

Fibo = Fibonacci retracement level

RSI = Relative strength index

DMA = Daily moving average

H&S = Head-and-shoulder pattern

Technical Comment

Analysis

  • Nickel consolidated higher but found overhead resistance after retracing 50 percent of the recent sell-off.
  • This is a key technical rejection, followed by the break below the confirmed bear flag formation.
  • The overall structure in the short term remains bearish and we cannot rule out an AB = CD move (see daily chart).
  • The daily RSI has already touched the DTL and turned lower again, confirming that this is strong technical resistance.
  • Meanwhile, the stochastic lines are getting set up for further price weakness – selling interest has picked up.

Macro drivers

The Asian market is set to remain rather quiet this week, with holidays in Malaysia, Indonesia and Singapore for Hari Raya Haji and then in China and Taiwan for the mid-Autumn festival. Chinese industrial production is due tomorrow; this should offer market participants further clues on how well the world’s second-largest economy is performing. The global equity market seems to have finally got the memo that there is quite a high possibility of the US raising rates this month. The January-February sell-off after the December 2015 rate increase is fresh in the memory. Still, the equity sell-off may well be profit taking that reflects seasonal weakness rather than a market correction as many feared. After all, global central banks are in this together and have a shared interest in provide sufficient and necessary easing to maintain a cohesive global recovery.

Nickel’s net long fund position (NLFP) has been rather resilient but remains vulnerable to profit taking. After a strong run, the NLFP appears to be plateauing – perhaps money managers are reassessing their positions. The recent price weakness may prompt further liquidation and could persuade short sellers to build their positions. We await the next NLFP update for confirmation.

Shorts are concentrated in the September contract, with four entities collectively holding a minimum 35 percent of the open interest. There are three entities holding longs but only at 15 percent – this is not enough to cover if shorts roll over their positions. Tightness is showing up in the nearby spreads – the contango in the c/3s at $44.25 is down from $55.00 at the start of last week. The presence of a dominant warrant holder at 30-39 percent could tighten the spreads further if the metal is in tight hands.

A narrowing contango in the c/3s is also attracting some metal back to LME-listed warehouses. There is two-way flow, with 546 tonnes arriving and 726 tonnes of outflow but LME stocks for the year is still lower on net. They peaked at January 2016 at 450,000 tonnes and now total 367,752 tonnes while available stocks are at 245,730 tonnes. With no immediate sign of a reversal in the LME stocks, the declining trend may well provide some price support.

Other development

Regina Lopez, the environmental and natural resources secretary of the Philippines, suggested in her latest commentary that “there will absolutely be more suspensions due to environmental reasons” – 10 mines have already been suspended since the start of the audit, with the newly elected Philippine government determined to raise mining standards.

There has been some talk that Indonesia may temporarily relax its ban on the export of nickel ores for those companies that are at advanced stages of building downstream NPI capacity but that need to raise money to finance the projects. Since nickel prices have continued to rebound despite this possibility, the market does not seem to expect much to come of it. In a way, Indonesian nickel miners have already suffered more than two-and-a-half years of pain since the ban was introduced and are only now starting to benefit from exporting NPI so it seems counter-productive to turn on the ore export taps again.

Conclusion

Prices remain in an uptrend after nickel maintained higher highs and lows since the start of 2016. The nickel market swung to a deficit of 21,200 tonnes in the first five months of 2016, the latest INSG figures show. If this trend continues, it should underpin nickel prices and potentially set up further rallies.

But we foresee near-term price weakness due to several factors:

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

C. Banks Delaying The Inevitable

  • 2015 – 2016 correction was allowed and c. banks react with various stimulus pledges
  • 2016 June post-Brexit correction was short-lived and stopped before the “true” damage has been priced in
  • Our concern is that market was stimulated to the current elevated condition that risk the same inevitable drop
  • It is perhaps c.banks interest has not been met – surprised by the Exit vote and went to panic mode to shore up global equity
  • The simple analogy is to see c.banks as a drunkard dude in the bar-levitating and enjoying the highs but soon going nowhere before the puking begins

Stages of the Global Equity Market

  • Drinking higher (Baby is the market) (Beer is the stimulus)

It has impulsive moves, irrational at times but financial media has found ways to justify the run higher despite knowing whatever it was jabbing was pure BS.

  • Drinking towards one direction

Image result for drunk phase

The market is drunk but it is heading straight for heaven but the fundamental for heading higher means it is not thinking straight after all.

  • Making sense of the inevitable results

After it peaked at its high, the process of going lower takes time.

  • Final stage of a drunkard

Image result for drunk puke

Sometimes, too much of the good stuff given by c.banks have its consequences.

The next worry is as follows:

  • if drinking is no longer fun or working – what other tools does c.banks have?
  • does c.banks have more tools after exposing itself to jump in too quickly during Brexit vote?
  • how will it react if the market pukes?

Disclaimer: NO BABY OR INDIVIDUALS WERE HURT OR DRUNK WHILE WRITING THIS ARTICLE

 

 

Expect The Unexpected – FOMC & BOJ

FOMC

  • Policymakers to remain largely dovish and uncertain on the timeline for a minimal rate hike
  • Confidence remain low and Brexit will be the topic used to suggest that a rate hike is not imminent
  • Optimistically suggest and forecast better numbers ahead – maintain inflation outlook and maintain the status quo that everything is “as awesome as it gets”
  • Perhaps a hawkish remark could turn the market upside down – a September rate hike could trigger market reaction

BOJ

  • Overwhelming expectation of a large stimulus package 10t? 20t or 30t – Further clarification needed
  • Market expects something from the BOJ – otherwise a potential tantrum could happen
  • USD/YEN on the agenda – helicopter money will not happen for now but will be lightly mentioned
  • Revision on inflation and growth target
  • Waiting for lift-off – currency weakness could be their main priority

Gold Monthly

Gold Weekly

Gold Daily

Silver Monthly

Silver Weekly

Silver Daily

Gold/Silver Ratio Weekly

Platinum 4 hour

TBT – Daily Digest FX and Indices

USD/JPY Weekly

Alternative USD/JPY Weekly

  • Looking to taking longs but with stops
  • On a breakout, will wait for retest to ride the trend

GBP/USD Weekly

  • Will be watching this – no trade as we head into 23rd June

NQ Daily

SPX Daily

  • Above 2050 bullish runs in-tact and expect more range trading

STOXX Weekly

  • Buy zone 2602 for bounce higher

CAC Weekly

  • Approaching key support zones – see blue line as potential rebound zone

DAX Weekly

IBEX Daily

IBEX Weekly

 

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Best Regards,

TBT