Platinum Trading Idea – APR 11 Futures

Today's Idea

The recent sell-off in April Platinum has prices holding just above the 20-day moving average. Should prices close below this short-term indicator, the next major support area looks to be near the 1710.00 area. This is also the 61.8% retracement from the October 2010 low to the recent contract high. Some bullish traders may wish to go long April Platinum should the market reach support around the 1710.60 area, with a protective sell stop at the 78.6% retracement at 1680.00.

Fundamentals

The long awaited price "correction" in the precious metals group (PMG) has finally come to fruition, with Gold futures off well over $100 from its highs, Silver down about 5 cents, and Platinum plunging $70 in the past few sessions. The entire PMG complex may be a victim of its own success, as large speculative long positions are now being liquidated as sell-stops are triggered and longs late to the market are exiting their trades and licking their wounds. Gold may be the weakest of the complex, with prices falling nearly 7% so far this year, as investors seem to have regained some confidence in the global economic recovery efforts and are now switching some assets from the "safe haven" of Gold and into equities and bonds. Silver has historically been a favorite trading vehicle for "smaller" speculators and investors, and although it has outperformed Gold lately, this much less liquid market can produce wide daily price swings, especially during a bout of liquidation selling. Ironically, the most expensive of the PMG's, Platinum, may end up being the best performer, as its prices have not reached all-time highs like Gold's — plus its use in the production of catalytic convertors has a built-in demand component, especially as automobile demand continues to increase in Asia, and especially in China. In fact, Chinese demand for Platinum rose by 40% in 2010 due to the surge in auto production. Though long liquidation selling may continue for the near future, some traders may wish to investigate the Platinum market as a potential upside play in the precious metals sector this year.

Technical Notes

Looking at the daily chart for April Platinum, we notice that Tuesday's sharp sell-off was halted right at the 20-day moving average. However, given the record long position being held by speculators, it may take further long liquidation selling, possibly to the 61.8% Fibonacci retracement level just above 1710.00, before health can be restored to the bull market. The 14-day RSI has moved back to a more neutral reading of 53.70. Volume on the recent sell-off was moderate to heavy, but not at an extreme level. Support for April Platinum is seen at 1710.60, with resistance seen at the recent high of 1851.10.

Support / Resistance & Oscillators

S2 S1 Pivot R1 R2
Apr Platinum Pivot 1756.80 1772.10 1796.40 1811.70 1836.00
Apr Platinum Chart 1710.60 1851.10

Posted in Futures Tagged with: , ,