From the Desk of Ian Culley @IanCulley
Precious metals and crude oil stole the show this week.
Crude oil reclaimed its prior-cycle peak, gapping higher on the Sunday open, while gold and silver posted fresh highs.
I’ll have more on those shiny metals Monday in the weekly Gold Rush report.
Today, I want to bring your attention to a commodity that often escapes the headlines – palladium – and why I think a significant bottom could be in place for this diverse metal.
I say “diverse” because palladium has multiple use-cases, from catalytic converters to fine jewelry.
Around ASC we jokingly refer to palladium as “the Notre Dame of precious metals” because it’s in its own conference.
Categorizations aside, here are three reasons I believe palladium is a strong buy…
Commercial hedges hold their largest net-long position in history!
I like tracking commercials since they represent the strongest hands with the deepest pockets. You can think of them as “smart money.”
And the smart money is accumulating palladium like never before.
Notice the sustained trends following similar commercial positions in 2012, 2016, and 2018.
It doesn’t help us define our risk. But the commitments of traders profile indicates conditions for an explosive leg higher.
Palladium futures are finding support at a key level.
Check out the chart spanning the past 50 years:
Over the past 20 years, Palladium has respected numerous Fibonacci levels extending from the downswing marked by the 1980s peak to the trough.
The market is telling me that these levels are important. It’s not a coincidence price has stopped going down at an extension level that marked the selling climax in 2020.
I have to give the bulls the benefit of the doubt as long as palladium holds above 1,333.
- An Absence of Bearish Momentum
The bears are losing conviction.
How do I know?
The 14-day RSI failed to register an oversold reading on the most recent downswing:
This reveals an easing selling pressure.
The bears are losing steam at a key Fib level and the 2020 lows as the smart money stockpiles palladium. It makes sense to me.
So what’s the play?
It all depends on your approach.
I like buying strength. When I zoom in on a daily chart, my entry-level rests just above last month’s pivot high of 1,532.
A decisive close above that level completes a potential short-term reversal pattern – a pattern that could launch price back toward 2,000.
If and when palladium takes out last month’s high, the path of least resistance is higher with an initial target of 1,825.
On the other hand, you could always trade against the year-to-date lows of 1,333 with the understanding it could get messy.
Regardless of the trading approach, palladium futures are carving out a tradeable low.
Perhaps a low coinciding with a critical inflection point considering the COT profile, a significant support level, and a lack of bearish momentum.
The weight of the evidence suggests this could be a helluva time to buy the Notre Dame of the precious metals space.
What did I miss?
Are you buying palladium down here? And, if so, what’s your approach?
Let us know. We love hearing from you.
COT Heatmap Highlights
- Commercial hedgers hold near their record-long position in palladium.
- Commercials added another 2,300 contracts to their long position in soybean oil, reaching a three-year extreme.
- And commercials hold their largest short position for cocoa in three years.
Click here to download the All Star Charts COT Heatmap.
