It has been a slow and choppy advance, but the price of palladium somehow managed to climb from as low as $450 in January, 2016, to $818 as of this writing. This means that an investment in palladium would have returned nearly 82% since the start of last year. However, the past is not always a good indication of the future. We prefer using the Elliott Wave Principle, which has helped us identify turning points in the markets many times. The chart below will visualize the progress achieved by the price of palladium in the last 16 months.
This chart does not look very encouraging for the bulls, because of two reasons: first, the whole rally from $450 appears to be a (W)-(X)-(Y) double zig-zag correction, where each wave subdivides into a simple A-B-C zig-zag. Wave C of (Y) seems to be a textbook ending diagonal pattern. Conventional technical analysts call it a wedge, but no matter how you name it, it suggests that a reversal should be expected.
And second, the relative strength index reached its highest point back in August, 2016, while the price of palladium continued climbing, creating a triple bearish divergence between the market and the indicator. It means that while the price has been rising, the driving force behind the rally has been diminishing.
If this is the correct count, the rest of 2017 is not going be anything close to what we saw in 2016. Instead, palladium prices might significantly decline from current levels. Nevertheless, as long as the lower line of the ending diagonal holds, selling is not recommended. On the other hand, this count would be invalidated, if the bulls lift palladium to $870, because at that level wave 3 of C of (Y) would become the shortest among wave 1, 3 and 5.
In conclusion:
- The price of palladium is unlikely to repeat last year’s performance
- The Wave Principle suggests a bearish reversal should be anticipated
- The RSI indicator supports the negative outlook
- Waiting for confirmation is still preferable
