daily reckoning article on nickel

With the recent correction price moves on the commodities markets, it’s useful to make regular updates to see whether it’s just a short-term retracement or a real downtrend.

Because the fundamentals have not really changed, most of the investors believe that the recent fall in commodities prices is just a healthy pause in the global long-term bullish trend. Therefore, on the charts, intermediary supports that may represent opportunities to enter new long positions are particularly watched.

This has been the case on the Nickel market. In our last update, posted on August 1st, we were saying that a rebound was likely soon as the price action was just about to reach an intermediary support, around $18,000.

The rebound occurred. Let’s have a look at the chart. Actually the price action posted a low on August 5 at $17,445 then bounced back sharply. A ton of Nickel is now trading around $21,000. It’s a 20% rise in 3 weeks. As expected, the previous highs posted in early 2004 and in May 2005 (points D and E on the chart) became the new low (point F).

Nickel prices had plunged so deep the last few months that a lot of mines had stopped temporarily their production. The production costs are high therefore it was not profitable anymore to run them. For example, the Swiss company Xstrata announced that it had closed its Falcondo mine during 4 months.



Now stainless steel demand appears to weaken. The Chinese Shanxi Taigang has announced that it would decrease its nickel production by 50% as the demand of stainless steel is slowing. This does not back the prices rebound.

Therefore the rebound on Nickel prices is likely to be a technical correction rather than the beginning of a new momentum on the upside. Don’t forget that the prices plunged by 67% from May 2007 to August this year.

The MACD and the RSI are well oriented, it’s a bullish configuration. The RSI shows that indeed the nickel was recently obviously oversold. Both of those indicators argue for a further rebound on the near-term.



However we will wait more to see if there is a longer-term momentum that is building and that may create a new uptrend. For the moment the level of $25,000 should be a strong resistance for the current price action. This target is a previous support line where the prices had rebounded in August and in December 2007 (points B and C). Once again, previous lows will be probably the new highs. Consequently a consolidation phase is likely during the coming months between $18,000 and $25,000.

A bullish momentum and a new uptrend would be possible if the resistance at $25,000 is cleared. On the other side, the bearish trend would continue if the price action breaks down below the support of $18,000.

Just hope the nickel price can break through the $25000 and not go the other way.
If the Chinese start revving up the economy again since the games have finished, things might start looking a bit better for us.

Dabru