The Commodities Corner in Barron's this week went over a number of fundamental reasons why palladium prices could rise. Because the average investor probably won't be buying palladium futures, we thought a look at the Physical Palladium ETF (PALL) and one mining company in this space -- Stillwater Mining (SWC) -- would be more in order.
The chart of PALL, above, shows improvement in the past month, but prices turned up without a retest of the low. While bottoms can happen like that, we have more confidence in bottoms that have retested. The On-Balance Volume (OBV) line has improved, but it could be a flash in the pan with a gap that could get filled and a big band of resistance in the $70-$80 area.
Many times, mining companies will start to rally before the actual metal. Why does this happen? Buying the actual commodity usually means a leveraged bet in the futures market. With a 1% or so down as your margin, one's timing of buying futures needs to be "spot on." If you decide to buy a related mining company, your timing doesn't have to be perfect as it probably won't be a razor thin margin and you don't have to worry about rolling futures contracts as they expire.
While prices in the chart above show SWC holding in the $9 to $8 area the past two months, the movement of the On-Balance Volume (OBV) line is disappointing. Volume is the weapon of the bull but the bulls are not making that much of a commitment to the long side of SWC. The Moving Average Convergence Divergence oscillator has risen back to the zero (0) line but with a broad band of resistance in the $12 to $15 area, we believe Stillwater's rebound is limited. Better trading opportunities will be found elsewhere in the weeks ahead.