•Nickel’s rally is pausing after the metal peaked at $10,900. Prices have pulled back 6.1 percent but underlying tails on Tuesday’s and Wednesday’s candlesticks suggest dip-buying.
•The move above the October 2015 peak at $10,785 bodes well – this was a significant resistance level. This could well open the way for the rally to extend.
•But it is not surprising that there is some supply in this area that will need to be absorbed before prices can continue higher.
•Another move above it makes $12,200 the next likely resistance level. Basis this weekly chart, the rally may only have just started. The long-term DTL is at $11,950.
•Although on the daily chart the rally looks to have already covered a lot of ground, nickel at $10,900 still seems inexpensive; it was not that long ago that nickel prices of $16,000 were considered ‘cheap’.
Other factors
Bullish factors are dominating the nickel market although there are plenty of bearish aspects too in the form of high exchange stocks.
Despite the bullish Philippine developments in recent months, c-3s is not tight – it was last at $50.75-34.75 contango, having so far in July averaged $40 contango, $45 in June and $37 so far this year. The forwards also do not suggest much forward buying, with 3-15 month at $130, having averaged $131 so far this year.
The bullishness is evident among money managers – their net long position has climbed to 60,972 lots from a low of 11,691 lots in mid-February via short-covering and fresh buying. Although money managers have already cut their gross short exposure significantly – it stood at 38,152 lots on July 22, down from 71,000 lots in February this year – 38,000 lots is still a lot of nickel to be short of if prices move into overdrive.
Confidence in Chinese demand remains weak; should that change, more restocking could well follow. We expect Monday’s Chinese manufacturing PMI to be crucial in setting the next direction in metals, especially if it surprises on the upside.
With option declaration a week away, there has been some profit-taking on call options. There are 877 calls with a $10,000 strike (down from 1,377 lots earlier in the week), 955 calls with a strike at $10,500 (down from 1,555), 584 calls (down from 843) of $11,000 strikes and 1,300 (unchanged) calls with a $11,500 strike. A pullback below $10,000 could see delta-hedge long liquidation while moves back above $10,500 could see delta-hedge buying.
Conclusion
Developments in the Philippines mining industry are now likely to be the key driver for nickel alongside any pick-up in the outlook for China’s economic growth.
We remain bullish overall.
Technical Aspect
Technically, Nickel is forming rectangle pattern on weekly chart having resistance at 730---750 while we consider 550---520 as major support or we call it as a rock bottom for Nickel. Nickel already falls from 1200—520.
Continue positive momentum in equity market and strengthening of global market could be supportive for base metal in near terms along with above news also could be supportive for Nickel. If everything goes right then we will see upside rally in Nickel till 800--850 and then to 930 mark in days to come.
ADX and RSI on weekly chart too indicate positive upside move and chances are bright that it will break above 730 . Nickel has crucial support at 520.
On seeing chart and current levels we will not recommend our positional traders to sell Nickel at these rates . Traders can buy and accumulate Nickel August contract above 730 with stop loss below 600 on closing basis for the target of 850 - 930++ marks .
