How do you describe an investment that explodes for a 50% gain in 40 days? Boom!
A more accurate word would be “platinum”.Since its initial burst, platinum eased off the accelerator and dropped back down to the stratosphere. It remains on a bullish trend, however. After the correction, buyers took advantage, and got back into a good fundamental trade.
What correction? Well, platinum got a lot of press while it was rising. Less as it fell. Platinum gave back 20% in March.
Since then, it’s moved again. The reason we like it today? It just broke a key resistance.
Before we discuss the chart, there are two factors at work in the platinum market. Firstly, US$130 oil is making mining it more expensive. Secondly, it’s a precious metal. That scarcity of supply makes it a key alternative for the US currency. We don’t see the European Central Bank cutting rates anytime soon. No European money will be flowing into the greenback. But precious metals stand to see a bit of cash slosh their way.
Above all, the energy crisis in South Africa is still disrupting production.
Now…on the chart, there’s an obvious support line at US$1,830. You can see the double-bottom pattern between March and early May. The surge of buying following this has taken us past resistance of US$2,100. We see the renewed momentum taking platinum further up, at least as far as US$2,281. That’s where the double bottom began to form.
The MACD indicator is also clearly bullish. Platinum was oversold at the beginning of May, when the indicator fell below the zero line. Since then, it crossed back up. It hasn’t become overbought yet, adding weight to the new momentum.
Here’s a new indicator: the On-Balance Volume chart. It calculates a running total of volume. It basically shows whether money is flowing in or out of an asset. An upward sloping line indicates a good in-flow, and an uptrend in price. The OBV chart confirms for you that investors are coming back into platinum in a big way.
Where to from here? Well, it’s a clear sky above US$2,821, so we can only speculate. But if the price moves through US$2,281 (and we expect it to go that far at least), you could see a platinum move all the way to US$2500.
Gabriel Andre
The Daily Reckoning Australia
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About the Author
A former Futures and FX trader/portfolio manager, Gabriel Andre has worked in several hedge funds and asset management firms, both in Europe and Australia. He is a contributing editor to both Diggers & Drillers and the Australian Small Cap Investigator.
Comment by Dan on 7 August 2009:
Ouch!!! Technical analysis obviously has some pretty serious limitations.
http://platinumprice.org/platinum-price-history.html
May 2008 looks like almost precisely the top of the market, just prior to a 64% decrease in the platinum price!
Comment by Richo on 7 August 2009:
LOL.
Nice example.
Comment by Pete on 7 August 2009:
Agreed. That's gotta hurt a bit.