The price of palladium rose significantly during the months between August 2018 to February 2019. By mid-March 2019, it was up nearly 52% from the August 2018 lows, climbing to an all-time high of $1615.30. The industrial metal’s wide use in the auto industry as well as its growing popularity in the jewelry business are thought to be causing the surge.
Our problem with fundamental reasons explaining a surge in non-value producing assets such as palladium is that they tend to disappear just as quickly when the tide turns. And indeed, despite all the positive factors, the price fell to $1325 by April 5th, erasing 18% of its market value in less than three weeks.
So instead of listening to the news, which is always very bullish near market tops and very bearish near the bottoms, let’s take a look at palladium’s recent decline through an Elliott Wave perspective.
The hourly chart reveals something that should make the bulls feel uneasy. It shows that palladium’s decline from $1615 to $1325 took the shape of a textbook five-wave impulse. The pattern is labeled 1-2-3-4-5, where the sub-waves of wave 3 are also visible.
Palladium Bears Remain in Control
According to the theory, impulses point in the direction of the larger sequence. This means that once the corresponding A-B-C recovery in wave (2/B) is over, another decline in wave (3/C) can be expected. The resistance area of wave 4 near $1450 is where a bearish reversal is likely to occur. However, even if the bulls manage to lift the price of palladium higher, the negative outlook remains valid as long as the starting point of wave (1/A) at $1615 is intact.
The structure of the selloff to $1325 indicates it is something more than just a pullback within the uptrend. If this count is correct, traders and investors should not put too much trust in palladium right now, especially given that wave (3/C)’s targets lie below $1325.