Technical Analysis Report: platinum

Along with the nascent global economic recovery there has been renewed interest in platinum, largely due to the metal’s crucial role in auto manufacturing.

A more robust global economy will mean greater automobile demand, thus driving up the need and the prices of the precious metal, or so the theory goes.

Indeed, the metal’s price has been on a steady march upwards over the last 12 months as it has climbed from the US$1,100 level all the way up to its current price of US$1,741, with little resistance along the way.

A look at the Commodity Future Trading Commissions’ Commitment of Traders report gives further cause for optimism.

The report divides traders into two broad categories, reportable and non-reportable positions. The non-reportable are small-scale speculators whose habits are not historically an accurate signal for future prices.

The reportable category is further broken down into producers, swap dealers, managed money and other reportables. It is here where traders that are “in the know” are found, and it is their habits, which have historically been accurate predictors of commodity prices.

A look at the report for April 20 shows managed money to have a significant stake in the metal with 20,892 long contracts compared to just 681 short contracts (a contract is for 50 troy ounces of platinum).

So with those positive indicators in mind, let’s examine a list of platinum companies to see which have the most telling technical indicators.

The companies looked at were: Impala Platinum (IMPUY-O), Eastern Platinum (ELR-T), Anooraq Resources (ARQ-V), Loncor Resources (LN-V), Platmin (PPN-T), Anglo Platinum (AGPPY-O), Platinum Group Metals (PTM-T).

Of those companies Platmin, Impala Platinum and Anglo Platinum show the most interesting technical indicators.

First let’s look at Platmin, a junior with Platinum projects in South Africa. Its key project is the Pilansberg platinum mine, which is currently being built up to full production.

Platmin announced on April 19, that it is looking to do a massive private placement that would bring it $250 million in cash. It did not yet know how many shares would be issued or at what price.

While the company’s stock has been on a minor down trend since mid-March, the pattern has leveled off since finding support at the $1.24 level.

Volume has also picked up recently with April 26 showing a high single day volume of 417,000 shares traded on a day when the company’s shares finished higher — showing good demand for the stock.

Also the Williams %R indicator shows the company’s stock to have been oversold since early April. Generally speaking, that is a long period of time to sustain oversold status, a push up out of the range and a corresponding uplift in price could be imminent.

The MACD chart furthers this view as it shows the MACD line to have turned upward and is approaching the signal line from below. A MACD crossing the signal line from below is a strong bullish indicator.

Moving well up on the market cap ladder, Impala, or Implats, is one of the world’s most significant producers of platinum with operations on the legendary Bushveld igneous complex in South African and the Great Dyke in Zimbabwe.

What is most striking about Implats’ share price is the recent buying volume that its chart displays. Since April 23, the company has enjoyed three out of four days of strong buying volume and yet its share price has yet to make a corresponding move higher.

Implats shares fell from their year-to-date high of US$30.42 on April 12 and are currently trading for US$27.80.

Like Platmin, Implats is in the oversold range of the Williams %R chart, although it has not been in the range for as long as Platmin.

As for the MACD, the chart is less encouraging for Implats than it is for Platmin. Firstly, while the MACD line is below the signal line it has not yet turned towards the signal line, which means it could well continue on its descent.

Secondly, the chart shows some negative divergence. Divergence occurs when the MACD chart fails to confirm recent highs or lows on the price chart. In the case of Implats, while its price rally in early April reached slightly above its previous rally in early January, the MACD chart failed to move to corresponding new highs. Such divergence can be a signal of weakness, however in this case the divergence is very slight.

Lastly, let’s turn our attention to another major platinum producer –Anglo Platinum.

Anglo’s stock shows an extraordinary amount of positive volume flowing into the stock in early April. That volume spike ushered in a solid run for the company’s share price from roughly US$104 to US$112 just 10 days later.

Unfortunately for Anglo shareholders, the move failed to substantially break through the resistance point of US$111 set in early January and its share price subsequently fell off.

While neither the Williams %R nor the MACD are particularly bullish for the stock, investors should pay attention to the resistance level. Should the stock break through the US$112 mark with strong volume it could be a sign that the stock is ready to reach new heights.

The author holds no positions in any of the companies mentioned.