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Technical Analysis #R-GMKN : 2016-03-01

The non-ferrous metals output fell on low prices

The non-ferrous metals edged up after the Bank of China decided to cut the reserve requirements to the banks for the 5th time in recent 12 months. Investors expect the move to support the economic growth and China’s demand for commodities. Will the Norilsk Nickel stocks advance? Now it accounts for 13% of global nickel production, 44% of palladium and 2% of copper.

Let’s study the revenue mix of Norilsk Nickel: nickel sales account for 46% of revenue, copper for 25%, palladium for 15% and platinum for 9%. Thus, the global metal prices increase pushes up the company’s stocks. On Tuesday the February Manufacturing PMI was released in China having fallen for the 7th straight month. Nevertheless, the news had no negative effect on the on-ferrous metals prices so far. Market participants believe such reaction may be caused by the contracted world supply given the low prices. The current Р/Е ratio (price to earnings) of Norilsk Nickel stocks for the recent 12 months is 6.5 which is far below the ratio of the similar companies. The additional factor of nickel price growth may be the closure of miming and concentrating Queensland Nickel factory in Australia for 11 days due to the lack of ore. The copper prices may find some ground in Freeport-McMoRan comments on the further production cuts in case of prolonged period of low prices. Moreover, Chile reported its copper production contracted in January by 13.8%. This state is the world copper production leader.

 

GMKN

On the daily chart GMKN: D1 is correcting upwards from the low of September 2009. It closed above the resistance of the flat trend. The Parabolic and MACD indicators have formed the signals to buy. RSI is edging upwards and has surpassed the level of 50. It has formed the positive divergence but has not yet reached the overbought zone. The Bollinger Bands have contracted a lot which means lower volatility. The bullish momentum may develop in case the Norilsk Nickel ADRs close the price gap of early January 2016 and surpass the level of 12.12. This level may serve the point of entry. The initial risk-limit may be placed below the 6-1/2-year low, the corresponding fractal lows, Parabolic and Bollinger signals at 10.2. Having opened the pending order we shall move the stop to the next fractal low following the Parabolic and Bollinger signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. The most risk-averse traders may switch to the 4-hour chart after the trade and place there a stop-loss moving it in the direction of the trade. If the price meets the stop-loss level at 10.2 without reaching the order at 12.12, we recommend cancelling the position: the market sustains internal changes which were not taken into account.

 

Position Buy
Buy stop above 12.12
Stop loss below 10.2


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