Chart Of The Day: Aluminum, Pressed By Economic Headwinds, Is Headed Lower

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Investing.com


The Federal Reserve’s fourth rate hike in 2018, , as well the central bank sticking to its path of , rattled investors already pessimistic about economic growth. One casualty of the outlook for a shrinking economy has been .

It doesn’t help that China is the world’s biggest producer of the lightweight metal, whose price was already declining because of tariffs and trade tensions. The base metal is down 14% since October.

Aluminum Weekly

Aluminum Weekly

Aluminum contracts topped out in October, bounced during November, retested the neckline in December and resumed their decline. While the 50 WMA provided a resistance from August through October—and the price had to cross below the 100 WMA before falling below the neckline—the 200 WMA traces the uptrend line since the 2015 bottom, revealing its technical significance.

Aluminum Daily

Aluminum Daily

The price formed a new trough after the return move, rendering it a successful retest of resistance. Both the MACD and RSI failed to rally, adding to the bearish outlook. The MACD retested the trend along with the price, when the short MA crossed momentary over the long MA, only to fall right back…and hard. The RSI, too, retested the momentum of previous support, which turned to resistance as more traders joined the bears’ ranks.

Trading Strategies

Conservative traders would wait for a potential return to the short-term downtrend line, “guarded” by the 50 DMA. Then, they’d wait for evidence of oversupply, with at least one long red candle, following a red or small candle of either color.

Trade Sample

  • Entry: 1,925.00, above Tuesday’s high
  • Stop-loss: 1,935
  • Risk: 10
  • Target: 1,895.00
  • Reward: 30
  • Risk-Reward Ratio: 1:3

Moderate traders may rely on the downtrend once today’s low price is violated.

Trade Sample

  • Entry: 1,900.00
  • Stop-loss: 1,910.00
  • Risk: 10
  • Target: 1,870
  • Reward: 30
  • Risk-Reward Ratio: 1:3

Aggressive traders might short now.

Trade Sample

  • Entry: 1,915
  • Stop-loss: 1,925
  • Risk: 10
  • Target: 1,885.00
  • Reward: 30
  • Risk-Reward Ratio: 1:3

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