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In this week's commodity dissector, we take a close look at aluminium traded in London Metal Exchange. Its unit is measured in USD/MT. For this technical analysis, LME primary aluminium 3 month rolling forward has been taken. It closed at $1,983, gaining $38.5 or almost 2 per cent on Friday.
Long-term trend remains up for aluminium as long as it trades above its significant long-term band between $1,800 and $1,850 levels. This base band coincides with the 61.8 per cent Fibonacci retracement level of the contract’s prior up-move from its February 2009 low to May 2011 peak.
A strong decline below the aforementioned base band will pull the commodity down to $1,685 and then to $1,600 in the long-term. On the upside, the commodity needs to rally above its key long-term resistance level at $2,400 to reinforce bullish momentum from a long-term perspective and take it northwards to $2,600 and then to $2,800. Next important resistance is pegged at $2,900 levels.
Medium-term view
Ever since peaking out in May 2011 from the peak of $2,803, aluminium has been trending downwards forming lower peaks and troughs. However, after taking support at around $1,830 during June and August this year, the commodity started to move upwards sharply. It then encountered resistance at $2,200 in mid-September, retracing 38.2 per cent Fibonacci retracement of its prior down move. The commodity has been on a short-term downtrend since its September peak of $2,200. It currently faces resistance at $2,030 levels.
A decisive jump above $2,030 will take aluminium higher to $2,100 and then to $2,200. But inability to rally above $2,030 will pull the commodity down to $1,944 and then to $1,900. Only a strong fall below $1,900 will drag the commodity further down to $1,800 in the medium-term.
To alter the commodity's intermediate-term downtrend, it needs to rally beyond $2,315 levels which is the key resistance above $2,200. In that scenario, the commodity can trend higher to $2,400 in the medium-term.
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