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Bollinger Bands Narrow On Palladium

09/27/05 01:21:23 PM
by Arthur Hill

Palladium has been lagging gold lately, and the resolution of the current consolidation holds the key to the future.

Security:   PA.1
Position:   Accumulate

On the weekly price chart (Figure 1), Palladium has consolidated between 170 and 220 in 2005. Trading has slowed to a crawl and the Bollinger Bands are at their narrowest since November 2002 (blue circle). Such contractions in volatility usually precede a significant move. However, Bollinger Band contractions do not offer any clues on the direction of the next move.

FIGURE 1: PALLADIUM. Trading has slowed to a crawl in 2005 and the Bollinger Bands are at their narrowest since November 2002.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock QuoteCenter.
For directional clues, I will turn to the price chart. Palladium broke falling wedge resistance with a surge in March 2005, but there was no follow-through. Instead, resistance at 210 held and the trading range extended. A break above 210 would forge a multimonth high and be bullish. This would call for a continuation of the 2003-04 advance and project a move above 350. Conversely, a failure at 210 and a break below support at 170 would be bearish and call for a support test around 150.

For an even earlier clue on the breakout, I am turning to the 20-period relative srength index (RSI). This momentum indicator has been working its way higher throughout the year (green trendline) and recently broke to a 52-week high (gray oval). In addition, RSI moved above 50 and momentum is starting to favor the bulls. This also favors an upside breakout. Failure to hold 50 and a move below 40 would be bearish.

Arthur Hill

Arthur Hill is currently editor of, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for and the main contributor to the ChartSchool.

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Date: 09/28/05Rank: 4Comment: 

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