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Chart Of The Day: Could Palladium Be The Better Hedge For Ukraine-Russia Risk?

Published 02/14/2022, 09:34 AM
Updated 09/02/2020, 02:05 AM

Investors are finding it tricky to insulate themselves from the possible Russian incursion into Ukraine. The US and Europe are threatening harsh economic sanctions which may or may not be effective considering Russia is a significant exporter of energy and agricultural commodities as well as materials.

Though the classic safe haven commodity, gold, has jumped since Russo-Ukraine tensions have escalated, perhaps the real precious metal in this particular scenario is palladium.

Russian production of the silvery-white metal accounts for approximately 40% of global output. The price of palladium has already surged by nearly 25% just since the beginning of the year. Any disruption, or expectation of such, to Russia's supply is almost certainly going to boost the price even further.

PA Daily

Though the price of the precious metal has moved higher, it's given up some of today's earlier gains. Nonetheless we expect this dip to be temporary—part of a return move off a completed falling flag that's bullish following palladium's recent, 9-day pop.

A flag develops when investors take a break to catch their breath after a dramatic move leaves them tapped out. Some traders may also question whether the upward action was exaggerated and rush to get out before their fortunes turn.

The price bends lower as bulls unload their burden. However, rather than trigger a reversal, it's a fresh crop of bulls, rather than bears, who pick up the load as indicated by the topside breakout, after buyers absorbed all local supply.

The trend 'needed' the flag which is a technical device that acts as a springboard, when the rising channel encountered the declining trendline from the May record peak. As such, the flag helped bulls gain momentum, besting the bears who had created the the long-term downtrend.

With the 50 DMA crossing over the 100 DMA and the price closing above the 200 DMA in yesterday's trading, we can see how the current uptrend is gaining traction. That momentum has enabled today's trade to bounce off the major moving average, using it as a springboard.

When the price overtakes and breaks through the downtrend line, that will signify that the short-term uptrend has beaten the long-term downtrend.

Trading Strategies

Conservative traders should wait for the price to break free of the downtrend, before buying, with a close above the 2,500 level, then successfully retesting the broken trend line.

Moderate traders could risk a long position after the price closes above the downtrend line.

Aggressive traders would enter a long position right now for an ideal entry, after a breakout and a return-move, allowing for little exposure. Money management, however, is what will determine ongoing trading success. Here are the basic requirements for a trading plan:

Trade Sample

  • Entry: 2,298
  • Stop-Loss: 2,288
  • Risk: 10
  • Target: 2,398
  • Reward: 100
  • Risk-Reward Ratio: 1:10

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