The current technical configuration is quite interesting for Nickel.
The current long-term trend is bearish, as the base metal prices have been deeply impacted by the global economic slowdown. Prices fell from 54,000 US Dollars per tonne in May 2007 to 9,500 USD today. Does it mean that on the long-term, Nickel is oversold?
Technically, no. On the weekly chart, there are no obvious patterns that indicate that the current trend could be over. Indicators do not show any significant reversal signals.
However, on the short-term, a technical rebound is likely to occur. Prices are currently testing the lower band (point C on the chart) of a slightly upward trading channel. This is a consolidation channel that stopped the huge decline in the second fortnight of October. The lowest point has been posted in October 24 when price action hit the level of $8,810 (point A). A higher low has been posted on December 4, at $9,055 (point B).
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The upper band of the consolidation channel is limited by points D and E, the highs posted at $12,625 and $13,420 in late October and early January. Those points build a resistance line that should be hard to clear soon.
The sharp bounces that occurred after points A and B argue for a similar price movement shortly, if the current support holds.
We use The Commodity Channel Index (CCI), originally designed for commodities, to assess the rebound’s potential. It is calculated by first determining the difference between the mean price of Nickel and the average of those means over the time period chosen (here we chose 14 days). This difference is then compared to the average difference over the 14 days. The result is then multiplied by a constant that is designed to adjust the CCI so that it fits into a “normal” trading range of +/-100.
The CCI is therefore an oscillator that looks for divergences and which is used as an overbought/oversold indicator.
The two methods here indicate a potential correction. First, the price action posted a new low (point C) while the CCI posted its low 2 weeks ago, on February 12 (blue ellipse on the CCI chart). It has rebounding since this date: this is a bullish divergence.
Moreover, as the CCI usually oscillates between +/-100, readings outside these ranges imply an overbought/oversold condition. The recent low of the CCI has been posted at -200 and has just jumped back above -100.
A correction is therefore expected. There is a first intermediary resistance around $11,700 (dashed line). The main objective is the upper band of the trading channel, around $14,000.