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: Technical selling could trigger tests of key support levels. The recent price action suggested that most of the positive fundamentals such as the crackdown on Philippine mining companies are baked in and there is a growing argument that this positive fundamental story is starting to lose its appeal. All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.

Equity – Profit Taking But…

The images that we have shared has truly shared our views of global central banks. With hindsight, it does seems that their intervention has had its good and bad days. Let us review the reasons and what consequences it might bring.

1. Trigger Happy

• who can blame Mr Carney and the BOE on additional stimulus when the public and most market participants are mislead that the so called gloom and doom BREXIT will have such a negative impact on the market
• why has the BOE and other central banks taken the stance to go all in to support the financial market pre-crisis level?
• looking back, if they failed to provide the necessary buffer – will we see a meltdown made by the UK public? Perhaps global leaders are not ready for such scenario
• going all in at that time has supported the financial market and revived the case of inflated assets which many would think slightly overpriced – but the buying continues since there are plenty of fresh QE money
• further promises are made by the banks of further rate cuts to more QEs – looks like the BOE is no better from BOJ

2. Other QE tools

• global central banks admitted that they might have run out of stimulus programs or tools
• fiscal spending and talks of increasing infrastructure spending in the US and China should help boost the global economy again
• BOJ is considering the unconventional Helicopter Money but this is far too early – nonetheless other central banks such as SNB is thinking to implement such tool
•  2017 promises to be quiet an unconventional year by central banks as they transitioned into the 9th year of slow growth and heavily induced economy thanks to QE programmes

3. US Election & Italian Referendum

• do we really have to choose between the two?
• Renzi taking a huge battle but the underlying problem is not solve yet
• Greece could resurface – Germany is facing pressure of anti-establishment
• European leaders are busy talking about Brexit but things are moving very slowly
• political and economical instability is looming with no changes or contingencies
• these are some reasons that the US Fed can use to delay a 2016 rate hike

4. The Show Must Go On

• what other choices does global central bank has now that it put all the chips on the table?
• more QE seems to be the best tool
• in search of greater yield – there is a strong tendency that global equity market should and could remain elevated for a long time
• precious metals may offer an alternative form of diversification
• strong rally and strong correction will be a norm but what seems to be clear is that there is no real solution unless there is a reset button

5. Final Consequences

• well how shall we start this? we are not fortune tellers so we truly do not know
• aren’t we in all this together? yes we are but the global income instability will only stretch further and we are afraid social inequality is set to rise
• global peace hanging by a thread due to over globalization and the chosen few? well put yourself in a position where you have a lot of money and power – what will you do? stick with the status quo and ignore everyone else might just be the best option to take or perhaps new innovation or distribution of wealth by those few chosen to appease the crowd
• we truly do not know but shall leave that as a thought