Palladium, the metal used in the catalytic converters of gasoline-powered cars to transform polluting gases into less harmful emissions, hit a record high today, nearing the $1,500 level on its fifth consecutive day of advances.
The meteoric surge in the price of the precious metal is being driven by a combination of a prolonged supply deficit and escalating demand, a result of increasingly stringent environmental requirements and stricter emissions regulations.
The trouble with reaching an all-time high is that, by definition, there is no expected resistance to provide a short position. As well, there is the risk of a pullback after entering a long position. While it's exciting to jump into an asset after good news, it could also be the worst time to do so, as it's the traders who got in before the headlines who take profits.
This possibility is highlighted by the bullish moving average formation, with each MA above a longer one, as well as the overbought RSI and MACD indicators. Therefore, we recommend waiting to buy into a dip.
Trading Strategies
Conservative traders should wait for a downward correction to the uptrend line since mid-August, at the $1,350 level, to demonstrate demand, with at least one long green candle engulfing a red or small candle of either color.
Moderate traders may be content with a dip to the $1,400 level, above the mid-January highs, with signs of a consolidation at that level, and at least one long green candle following a red or small candle of either color.
Aggressive traders might go in immediately, or wait for an intraday dip, in hopes that the all-time high would attract new demand, pushing prices higher. They should create a stop-loss based on money management considerations, absent a nearby support.
Trade Sample
Entry: $1470
Stop-Loss: $1,469
Risk: $1
Target: $1,500
Reward: $30
Risk-Reward Ratio: 1:30