Playing The Battery Story

This story features PILBARA MINERALS LIMITED, and other companies. For more info SHARE ANALYSIS: PLS

Bottom Line 02/05/18

Daily Trend: Down
Weekly Trend: Down
Monthly Trend: Down
Support Levels: 31.30 / 28.71 / 28.00 
Resistance Levels: 34.14 / 36.23 / 37.26

Technical Discussion

The Global X Lithium & Battery Tech ETF (LIT) is a comprehensive and well rounded ETF that invests in the total lithium cycle. Right from the beginning of the supply chain at the mining level, through to refining and battery production. It commenced trading in July 2010 and its primary exchange is the NYSE Arca. The advantages of this ETF is that it provides access to a broad basket of companies aligned to the Lithium sector. Lithium is commonly known for its use in lithium batteries yet it is also in high demand in relation to manufacturing heat resistant glass and ceramics. Yet it's the projected widespread adoption of lithium batteries in emerging technologies that has most investors interested at the moment. Top producers globally include Australia, South America (Chile & Argentina in particular) and also China. 

Reasons to be bullish longer term (watching immediate weakness) 
→ A key resource required in the emerging technology sector
→ Limited producers globally yet growing
→ Europe and China seen as major consumers moving forward 
→ Technically the price chart remains bullish off the 2015 lows

This is our second review on the Global X Lithium & Battery Tech ETF (NYSE: LIT). After surging more than 64 percent in 2017, the ETF appears to be weakening lower as part of a Wave-4 with the typical 38.2% retracement zone aligned to 31.95. This has now been tagged on the 4th April with a low locking in at 31.50, yet significantly on this day we witnessed buyers closing out the session on its highs at 32.54 on above average volume. This also locked in the 5th tagging of the upper and lower boundaries of the falling wedge pattern we are tracking on the daily chart, which is the minimum criteria for these type of patterns to complete. This means we now need to be on the alert that a breakout higher could be getting close.

These patterns are traditionally deemed as being bullish, yet at the same time the internal swings can also extend out to seven or even nine touches of the upper and lower boundaries. So clearly this is something we need to be wary about. That said our typical wave-4 target has been attained as mentioned, with the buyer reaction so far being solid. So any move above 34.14 from here could well trigger this bullish falling wedge pattern into action, with the minimum target expected aligned to the beginning of this formation circa 37.26. Such a move will also take price back above the 200 day moving average.

Another positive is that volume overall has been lowering throughout this period of weakness (especially post late February), which tends to indicate that the selling has gradually been on the wane. We now need this to remain the case, and if we are granted the breakout above 34.14 with a sudden spike in volume, then this will keep our analysis nicely on track that the weakness seen since the beginning of the year is finally drawing to a close. The interaction between price and volume over the coming weeks is going to be very closely monitored.

Trading Strategy

Recommending ETF's is not within our scope, yet if this is a market sector you would like to get involved in, then it is certainly worth monitoring. The Lithium ETF is also a great way to diversify your investment portfolios, and within a market space that presently has an immense amount of interest. As such the timing for such a trade may well be near, with the trigger being above 34.14 as outlined in our technical section. For those traders that prefer just trading ASX aligned stocks, keep an eye on three of the bigger players in this sector – Galaxy Resources ((GXY)), Pilbera Minerals ((PLS)) and Orocobre Ltd ((ORE)). With some of the smaller caps worth watching being Argosy Mineral ((AGY)) and European Lithium ((EUR)). Note the latter smaller caps may be defined as high reward plays, yet they are also higher risk so will not suit all trader profiles. Risk management is everything if you decide to get involved, if and when Lithium starts moving again to the upside. 

[Note: Mineral Resources ((MIN)) is also an established lithium miner alongside its iron ore mining and mineral processing businesses- Ed]

Re-published with permission of the publisher. www.thechartist.com.au All copyright remains with the publisher. The above views expressed are not by association FNArena's (see our disclaimer).

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