Aluminum reached all goals of correction, we expect reversal

14 February 2023 205
Aluminum reached all goals of correction, we expect reversal

Aluminum quotes continue to decline, having lost almost 9% of their value since the beginning of February. The price has worked out all the Fibonacci correction levels, the last of which (61.8%) is at 2410. The RSI indicator has come close to the oversold zone, increasing the probability of an early rebound upwards.

The weakness in aluminum prices in recent days by the fact that the main bullish factor of the beginning of the year, namely the recovery of the Chinese economy, has already been won back, while there haven’t yet been any new incentives to increase the cost of industrial metals. And the pace of China's development doesn’t look impressive now. Thus, aluminum production in China decreased in January by 0.6% compared to the previous month, to 3.42 million tons.

At the same time, the slow recovery in demand is a thing that may lead to a decrease in the supply of aluminum, which will support prices. By the end of February, the level of aluminum smelters' workload in some provinces may decrease by up to 10-20% due to the slow recovery of raw materials production and the lack of electricity in the southwestern part of China.

A 200% duty imposed by the United States on Russian metal could also become a growth driver of aluminum prices in the future. This may cause the growth of aluminum prices in Western markets. At the same time, major US metallurgists don't see any significant decline on the demand side. On the contrary, the low stocks stimulate some growth in aluminum production, as well as cheapened energy resources.

The range of 2400-2420 looks interesting for a set of long positions in aluminum. The first growth target will be the level of 2460, then a movement to 2510 is possible. You may use the level of 2380 as a stop-loss.

We may offer you the following option of trading strategy: 

Buy aluminum in a range of 2400-2420. Take profit 1 — 2460. Take profit 2 — 2510. Stop-loss — 2380.

Also, traders can use Trailing stop instead of fixed Stop-loss at their disposal. 

This content is for informational purposes only and is not intended to be investing advice.

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