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Aluminum Surges to a 2-Year High: A Price "Puzzle" With One Main Missing Piece

Back in June, a clear Elliott wave picture began to emerge for aluminum; one that was bullish -- despite the supposed bearish impact of the pandemic

by Nico Isaac
Updated: March 29, 2021

Talk about putting the "Al" back in "rally"! (Al is the atomic name for aluminum). As the chart below shows, aluminum has enjoyed a near vertical ascent, rallying off its May 2020 lows to a 2-year high on March 22.

31921aluminum

Some financial events are tough to explain. But according to mainstream analysis, the reason for aluminum's rally couldn't be more obvious; namely, the renewed demand for industrial metals amidst the global economies' emergence from the year-long pandemic.

Having any good news about an end in sight to this pandemic, we're almost willing to believe this explanation...

...almost.

Because, if you take another look at the aluminum chart, you'll see that prices began to rise in May 2020, long before a widespread call for a "return to normal."

In other words, the reason for aluminum's rally to 2-year highs is "obvious" to the experts -- now -- after the metal has already been rallying for months.

But before said rally began, the mainstream stage was set for a dramatic decline caused by the pandemic. This May 27, 2020 Reuters article summed it up:

"Aluminum has been one of the industrial metals hit hardest by the coronavirus. So severe has been the collapse that aluminum could be facing its own WTI oil moment with the premium turning negative."

Yes, it was VERY difficult for "fundamental" analysts to see beyond the pandemic's detriment to industrial metal demand.

Fortunately, on June 6, 2020 our Metals Pro Service analyst Tom Denham looked outside the "fundamental" backdrop and directly onto the Elliott wave pattern unfolding on the price chart of aluminum for insight into the metal's unfolding trend.

There, Tom identified a finished decline on multiple time frames and said:

"...price could be bottoming with truncation. Rising above 1534.00 raises confidence and opens the door to looking up towards the 1850.00 area."

6520mpsaluminumdaily

From there, aluminum took off with gusto, surpassing Tom's 1850 target by the start of 2021.

On February 5, Metals Pro Service alerted subscribers that another turn higher was due next:

"Aluminum may have completed a complex wave iv (circled) at 1953.00 and starting to rise in wave v (circled) of C to new highs near 2200.00."

2521mpsaluminum

Again, aluminum followed its Elliott wave script to a T, rallying to a 2-year high on March 22:

31821aluminumdaily

In the end, there's no such thing as a fool-proof model for market forecasting. The benefit of Elliott wave analysis is not perfection; its probability, identifying potential, high-confident setups on price charts and helping traders manage risk along the way.

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