I’ve had palladium on my mind for a while – long before gold posted a new all-time high.
Why palladium?
It all started with an extreme Commitment of Traders (COT) profile…
Check out the longer-term chart of palladium futures with the COT in the lower pane:
Commercial hedgers posted a new record-long position back in April.
Notice the sustained trends following similar commercial positions in 2012, 2016, and 2018.
Commercials represent the strongest hands with the deepest pockets. Plus, they have inside knowledge of the supply and demand dynamics of the market in question. It’s OK to think of them as “smart money.”
But record-long positioning isn’t a signal on its own. It doesn’t help us define our risk. It simply indicates the market structure.
Case in point: Record-breaking long positioning became the norm for commercials as price continued to fall throughout the year.
Holding a long position since the spring required deep pockets and proved a painful opportunity cost.
But the pain of owning palladium is likely behind us as long as the futures contract trades above 1,150.
Buyers reclaimed that key area marked by an extension level and the 2018 (and 2001) highs.
I like taking a swing down here with a small position and a wide stop. Palladium is a longer-term play for me – at least for now.
Nevertheless, I don’t want anything to do with it below 1,150.
Price is king. But that and commercial positioning aren’t the only reasons palladium is racing across my mind…
This year’s historic first-half performance from the Nasdaq 100 $QQQ has also grabbed my attention.
If you’re wondering what tech stocks have to do with palladium, take a look:
Palladium futures and the Nasdaq 100 follow the same path over more extended time frames.
I don’t want to make the bet that these two markets will continue to diverge in the coming quarters. And I certainly don’t want to take the short side of the QQQs.
If you don’t trade the future markets and are looking for a pure play on palladium – fear not.
Due to the size of the palladium contract and the capital needed, I actually prefer to trade the Abrdn Physical Palladium ETF $PALL:
I like trading PALL with a long-term objective of 275. That’s only if it holds above 85.
Be sure to check out this week’s Chartbook, as our long setups are working, and new entry signals are taking shape.
