NICKEL TODAY: Eroding DTL from October 2019 high

Very short term (1M):  Up 
 Short term (3M): Flat
Medium term (6M): Flat
Long term (12M): Up
R1 12,791 20 DMA
R2 12,925 March 2020 high
R3 14,350 2020 high
S1 12,140 Feb 2020 low
S2 12,015 Jul 2019 low
S3 11,605 Jun 2019 low 

BB - Bollinger band
DMA - daily moving average
Fibo - Fibonacci retracement level
HSL - horizontal support line
SL - support line
MACD - moving average convergence divergence
U/DTL - up/downtrend line
H&S - head-and-shoulder pattern
RSI - relative strength index

  • LME nickel is working its way higher on Wednesday March 4. 
  • A positive close above the 20 DMA as well as the DTL off the October 2019 high (see chart) is required to unlock more gains.
  • The technical indicators suggest that more upside is possible in the short term. 
  • A positive close above the 20 DMA today would give buyers the confidence to target the 50 DMA next.
Macro drivers
There were tentative signs of recovery at the start of a new trading month but the extreme market conditions, stemming from continued uncertainty about the deadly novel coronavirus (2019-nCoV), continued to disrupt global financial system. Despite global central banks' best efforts in coordinating interest-rate cuts, major equity indices ran into heavy selling on March 3 in a sign that not all is normal just yet.

Despite the uncertain macroeconomic backdrop, LME base metals prices apart from zinc have run into dip-buying pressure. Although most metals are rebounding, the upward momentum needs a great deal more conviction to change the current ‘sell the rally’ mentality.

Although LME nickel has started to rebound, the upside momentum required to break above the psychological level of $13,000 per tonne remains capped. Net speculative funds positioning is still bearish - there was fresh selling of 3,891 lots in the week to February 28. As a result, the LME net short fund position (NSFP) has grown to 11,788 lots.

The downstream demand outlook does not look too encouraging. There has been growing concern since the final quarter of 2019 that demand from Chinese stainless steel mills may not be as robust this year due to tight profit margins and reports of excess supply. Another bearish catalyst is the growing uncertainty about demand from the electric vehicle (EV) sector following month-on-month declines in Chinese new energy vehicle sales since the reduction in government subsidies for such vehicles in July last year. Even though the 2019-nCoV infection rates in China appears under control, disruption continues. Demand for big-ticket items such as automobiles and white goods are unlikely to be the top of consumers’ to-buy lists.

According to our latest Stainless Steel Market Tracker, Chinese stainless steel prices have come under downward pressure from potential production cuts due to persistent logistic disruptions. Authorities have attempted to restart operations at factories again but this has been hampered by workers who have been slow to return from their hometowns. And even in bigger cities where workers have been allowed to return to work, they are under strict governmental inspections.

LME nickel is well positioned to break out of the descending wedge if buyers can muster a strong positive close today. Higher prices could discourage aggressive selling and potentially encourage short-sellers to reduce some of their bearish exposure.

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


March 04, 2020

10:16 GMT