Lithium

ChartWatch: Did we just see the low in ASX lithium stocks?

Wed 01 May 24, 9:33am (AEST)
lithium low point MI
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Key Points

  • Lithium minerals prices are trading down around 80% from their 2022 highs and this has had a debilitating impact on ASX lithium stocks
  • A key lithium mineral futures contract rallied sharply Monday on news of incentives for the Chinese EV market and possible increased regulation on some Chinese producers
  • ASX lithium stocks have rallied this week, but with the vast majority sporting long term downtrends on their charts, is it still too early to buy?

Today’s ChartWatch is a follow up on my analysis of Lithium Carbonate Futures in Monday’s Evening Wrap. As mentioned in that analysis, from a technical perspective it was most unexpected. On this basis, I suggest the ASX lithium sector deserves another technical once-over.

A couple of potential explanations for Monday’s rally have come to light. It is possibly due to news that China has introduced incentives for consumers to upgrade their old cars for newer, lower emissions models. I also received a report via X/Twitter that a leaked report indicated increased inspections and environmental regulations may be on the way for China’s lepidolite producers.

In theory, the first item could boost demand for lithium minerals, and if it’s true, the second item could raise the cost curve for China’s lepidolite producers and potentially crimp supply. A potential double whammy for the lithium price – hence Monday’s bullish price action.

lithium carbonate futures july-24 GFEX 30 April 2024
Lithium carbonate July 2024 futures, GFEX

Unfortunately, yesterday's black candle nearly completely wiped out Monday’s gains, and worse, it sets Monday’s high of 117150 as another, lower point of supply.

In the interests of trying to stay ahead of the curve, I’ve decided to conduct another ASX lithium sector review to assess whether there’s been any significant change in the mostly well-established long term downtrends I witnessed in my last ChartWatch on the sector back in March.

This time, I thought I might mix it up by checking the charts of a few major global lithium players to see if there are any trends emerging overseas which aren’t yet reflected here. I’ve also added two popular picks (WC8 and WR1) as voted by you via my X/Twitter feed.

I’ll do the overseas stocks first, and then their ASX counterparts in alphabetical order. Where there are few signs of excess demand, I will be appropriately brief – because really – we’re only looking for those stocks that are demonstrating signs the smart money is moving back in.

International lithium stocks

Albemarle (NYSE: ALB), Arcadium Lithium (NYSE: ALTM), Lithium Americas Corp (NYSE: LAC), Sociedad Quimica y Minera (NYSE: SQM), Tianqi Lithium Corporation (SZSE: 002466).

Albemarle (NYSE: ALB)

1. Albemarle Corporation (NYSE-ALB)
Albemarle appears largely rangebound

ST/LT Trends: ➡️/⬇️

Price action: 📈

Candles: ⬜

Key Support / Resistance: 5 Mar trough low @ 106.69 / 9 Apr peak high @ 133.72

Commentary: ALB is range bound between 106.69 and 143.19, but dynamic supply from the long term downtrend ribbon is likely more relevant, particularly as it’s roughly coinciding with 133.72.

Like ALTM, I note some commendable demand-side control showings such as predominantly white candles since the last trough, a switch back to rising peaks and rising troughs, and Monday’s gap and run white candle with a high close.

Volume was also elevated on Monday indicating increased interest as well as supply removal – both are important if the new uptrend is to continue.

Unfortunately, Tuesday’s candle has undone all of Monday’s good work. It demonstrates how fickle rallies in lithium stocks can be, and how susceptible any hint of higher prices is to a supply side who is eager to sell into any blip up. 

Until this situation changes to one of buy the dip and not sell the rally – and this goes for all lithium stocks in this review – I can’t see any reason ALB won’t continue to plod away, bumping along the bottom of its trading range. 

So, what does buy the rally look like? It looks like rising peaks and rising troughs, of predominantly white candles, of trend ribbons offering dynamic support (not resistance), and closing above key points of supply.

You'll know when you see it – and when you do the lithium bear market is over!

On the subject of key points of supply, 133.72-143.19 is the key supply zone, watch out for black candles and or upward pointing shadows to signal long term supply has returned there.

106.69 is the key point of demand. Below it, the next key zone of demand is 90.07-101.00 from the weekly chart (not shown).

 

Arcadium Lithium (NYSE: ALTM)

2. Arcadium Lithium (NYSE-ALTM)
There’s some very tentative signs demand is creeping back into the ALTM chart

ST/LT Trends: ➡️/N/a

Price action: 📈

Candles: ⬜

Key Support / Resistance: 18 Apr trough low @ 3.67 / 9 April peak high @ 4.55

Commentary: Note, there’s not a great deal of data in the chart because post the Allkem-Livent merger, the chart was reset.

Despite a lack of a long term uptrend (or any long term trend for that matter), ALTM’s chart is showing some promise in the very short term.

Since the 18 April low, I can see predominantly demand-side candles, price action that has moved back to rising peaks and rising troughs, and a large white candle that demonstrates a wall of excess demand on Monday.

I also note increased volume on Monday’s candle which indicates supply removal as well increased interest. Importantly, Monday’s candle has closed above the dynamic supply of the short term trend ribbon, which has also transitioned to neutral from down.

Tuesday’s candle, unlike those for ALB, LAC, and SQM, is commendable. Yes, ALTM closed lower on the session, but the downward pointing shadow and white body suggest demand is still present, trying to match it with the supply that continues to nag away.

Given the lack of supply so far shown at the 4.55 point of supply, it’s unlikely this area will offer great resistance to a continued rally. If the price does close above 4.55, the next zone of supply is at 4.78-4.83.

Given the strong showing of demand in Monday’s candle, I would not be surprised to see a further retracement of ALTM’s losses in the very short term. If this occurs, 4.78-4.83 is likely to offer some immediate resistance and 5.66 is likely to cap gains in the medium term.

 

Lithium Americas Corp (NYSE: LAC)

3. Lithium Americas Corp (NYSE-LAC)
The move on 18 April likely destroys the any possibility of a move back to the bull case for some time

ST/LT Trends: ⬇️/⬇️

Price action: 📉

Candles: ⬛

Commentary: I’m going to be brief here. Both short and long term downtrends are well entrenched, and the massive gap down on immense volume on 18 April means there’s likely little I can do here as a trend follower for a very long time (apart from maybe going short!).

This is hands down the worst chart of any of the stocks in this review.

 

Sociedad Quimica y Minera (NYSE: SQM)

4. Sociedad Quimica y Minera (NYSE-SQM)
The analysis will be brief for LAC from any trend follower

ST/LT Trends: ➡️/⬇️

Price action: 📉

Candles: ⬛⬜

Key Support / Resistance: 25 Apr trough low @ 42.13 / 11 Apr peak high @ 51.90

Commentary: Similar to ALB in that this one is likely range bound until a close above 51.90 or below 42.13. The long term downtrend ribbon will likely drag supply lower than 51.90 though – I expect more like $50.

I note fewer white candles than ALTM and ALB, but a similarly strong showing on Monday. Unfortunately, that strong showing was all but undone on Tuesday.

Again, there’s little for a trend follower to do here – that long term downtrend ribbon just looks invincible. Until SQM at least challenges this zone with a cluster of demand-side candles, as well returns to risking peaks and rising troughs, there are clearly stronger showings of excess demand elsewhere to pursue first.

A close below 42.13 would likely see 38.50 tested, with a close below that point not finding a zone of demand until 28.47-34.92 from the weekly chart (not shown).

 

Tianqi Lithium Corporation (SZSE: 002466)

5. Tianqi Lithium Corporation (SZSE-002466)
beeeeeeeeppppp!

ST/LT Trends: ⬇️/⬇️

Price action: 📉

Candles: ⬛

Commentary: This one will be even briefer than LAC! As a trend follower I can see zero redeeming features in this chart for a long trade. If there is to be a broad-based rally in global lithium stocks, one could assume this chart would at least show a pulse of demand.

To keep that analogy going, Tianqi – which is responsible for nearly half of the world's lithium production – appears dead on the table from a technical perspective…beeeeeeeeppppp!

 

Australian lithium stocks

IGO (ASX: IGO), Latin Resources Ltd (ASX: LRS), Liontown Resources (ASX: LTR), Mineral Resources (ASX: MIN), Pilbara Minerals (ASX: PLS), Wildcat Resources (ASX: WC8), Winsome Resources (ASX: WR1)

 

IGO (ASX: IGO)

6. IGO (ASX-IGO)
Latent supply continues to nag away at IGO’s price action

ST/LT Trends: ➡️/⬇️

Price action: ⬅️➡️

Candles: ⬛⬜

Key Support / Resistance: 22 Jan trough low @ 6.76 / 4 Mar peak high @ 8.47

Commentary: Range bound again. 6.76 is demand and 8.47 is supply. In-between it’s mostly chop, with roughly as many demand-side candles as supply-side candles.

Yesterday’s candle is impressive, though, pushing the price action above the last four peaks, as well as a cluster of peaks between 7.85-7.88 set in early March. It also brings the IGO price closer to its major supply-side challenge in the form of 8.15-8.47.

Yesterday’s candle’s upward pointing shadow is symptomatic of latent supply lurking at higher prices…waiting patiently to offload their IGO shares.

It will be interesting to see how the next few candles print. White candles and or downward pointing shadows would indicate growing demand-side control, therefore increasing the possibility of a successful break of 8.15-8.47.

On the other hand, black candles and or downward pointing shadows would confirm the supply lurking in 8.15-8.47 remains heavily motivated, therefore increasing the possibility its resistance will hold.

I also note the current proximity to the all-dominant dynamic supply of the long term downtrend ribbon – it is not to be trifled with! Ultimately only a close above this barrier can commence a new long term uptrend.

Looking at downside scenarios, a close below 6.76 would set IGO up for a deeper decline. 5.96 from the weekly chart (not shown) is the next key point of demand should this be the case.

 

Latin Resources Ltd (ASX: LRS)

7. Latin Resources (ASX-LRS)
Trying hard, but will it be enough to drag in fresh demand?

ST/LT Trends:  ⬆️/➡️

Price action: 📈

Candles: ⬜

Key Support / Resistance: 3 Apr trough low @ 0.17 / 4 Mar peak high @ 0.235

Commentary: The demand-side is trying so hard to wrestle back control of the price here – the question is will it be enough to drag in fresh demand and inspire the supply-side to hold on for more?

I can see a resumption of rising peaks and rising troughs as well as a switch back to predominantly supply-side candles. The short term trend has swung back to up, and the price has closed above the long term trend ribbon (neutral). All checks.

But the zone of supply between 0.23-0.235 appears to be offering stiff resistance. Until the price closes above this barrier with a nice white candle with a high close, there’s little to do but wait and watch.

The next key point of supply after 0.235 is 0.29.

The short term uptrend remains intact as long as the price continues to close above the short term uptrend ribbon.

 

Liontown Resources (ASX: LTR)

8. Liontown Resources (ASX-LTR)

Going nowhere fast

ST/LT Trends: ➡️/⬇️

Price action: 📉

Candles: ⬛⬜

Key Support / Resistance: 23 Feb trough low @ 1.07 / 11 Apr peak high @ 1.36

Commentary: A promising short term uptrend from February’s low to March’s high has been snuffed out here. Instead it’s evolved into a withering downtrend that is accumulating below the dynamic supply of the long term downtrend ribbon.

Broadly falling peaks and troughs, and apart from the last few candles, predominantly black candles, demonstrate the pesky fingerprints of a committed supply-side.

Plenty needs to happen here to capture the attention of trend followers again. For me, I need to see at least a return to demand-side candles, higher peaks and higher troughs, and a close above the long term downtrend ribbon.

1.36 is the key point of supply – yesterday’s upward pointing shadow speaks of latent supply there. 1.07 is the key point of supply – below it, 0.875 is the next one down.

 

Mineral Resources (ASX: MIN)

9. Mineral Resources (ASX-MIN)
A new long term uptrend has commenced in MIN

ST/LT Trends: ⬆️/➡️

Price action: ⬅️➡️

Candles: ⬜

Key Support / Resistance: 24 Apr trough low @ 66.31 / 9 Apr peak high @ 73.16

Commentary: MIN is showing a strong short term uptrend within a long term trend that is transitioning from down to up (currently neutral).

Price action is mixed, but the rebound from the long term uptrend ribbon at 66.31 is an impressive showing from the demand-side.

It is clear the long term uptrend ribbon has transitioned from a zone of dynamic supply to dynamic demand – a key trait of a long term uptrend. When this occurs, I am comfortable calling a new long term uptrend would be in place ahead of an eventual colour change in the ribbon.

Yesterday’s candle tested 73.16, but the upward pointing shadow demonstrates it is indeed a key point of supply. However, I can’t see anything in the broader MIN technicals to suggest 73.16 can’t eventually be overcome.

It’s disappointing from a reward to risk perspective that above 73.16, the next key points of supply of 74.77 and 77.44 aren’t far away.

A close below the 66.31 terminates the current uptrend and puts MIN at risk of a resumption of the long term downtrend that plagued it for most of 2023.

 

Pilbara Minerals (ASX: PLS)

10. Pilbara Minerals (ASX-PLS)
PLS gets far more interesting with just a few decent demand-side candles around the current price

ST/LT Trends: ➡️/⬇️

Price action: ⬅️➡️

Candles: ⬛⬜

Key Support / Resistance: 27 Mar trough low @ 3.70 / 13 Mar peak high @ 4.27

Commentary: Slightly better than range bound, I suggest. Today’s candle is an important push towards the top of a range that is partly bounded by the long term downtrend ribbon and points of supply at 4.04 and 4.08.

Such is the choppiness of the recent PLS price action!

Unfortunately for PLS bulls, yesterday’s candle is far from a convincing showing by the demand-side. It smacks of latent supply at higher prices waiting patiently to sell into strength.

The chart requires a decisive break of 4.08 to really drag in the demand-side, as well as embolden the supply-side to refrain from selling their shares in the hope of higher prices.

Yesterday’s high of 4.20 and up into 4.27 is now the key supply zone. Further black candles and or upward pointing shadows in there confirms supply-side control, whereas white candles and or downward pointing shadows indicates the demand-side has successfully wrestled control of the PLS price.

3.70-3.73 is the key zone of demand, but it will be interesting to see if the long term downtrend ribbon starts to offer dynamic demand – this would be a very positive development.

All in all, an interesting chart here, and one that gets far more interesting with just a few decent demand-side candles around the current price.

 

Wildcat Resources (ASX: WC8)

11. Wildcat Resources (ASX-WC8)
So much work must be done to rebuild price action, trends, and most importantly, demand-side confidence

ST/LT Trends: ⬇️/➡️

Price action: 📉

Candles: ⬛

Key Support / Resistance: 23 Apr trough low @ 0.45 / 9 Apr trough low @ 0.61

Commentary: I made a great call if I say so myself last time I analysed WC8 in my March update, noting there were some “major issues” with the sustainability of the then prevailing uptrends. Since, the price has unravelled, plunging WC8 to close beneath the long term trend ribbon prior to the current bounce.

Yesterday’s candle demonstrates the supply-side is still very active, and the demand-side is not yet determined enough to regain control of the price. Note yesterday’s high was smack bang at the dynamic resistance of the short term downtrend ribbon.

I require further demand-side candles as well as a return to higher peaks and higher troughs to be confident the demand-side has returned to control. Ideally also, the price closes above the short term downtrend ribbon.

Even then, 0.61-0.665 is likely a major supply zone, and in it I’d expect to see supply manifest itself as black candles and or upward pointing shadows.

0.45 is demand. A close below it would confirm the transition to a new long term downtrend.

 

Winsome Resources (ASX: WR1)

12. Winsome Resources (ASX-WR1)
A tidy set of technicals indicating solid demand-side control

ST/LT Trends: ⬆️/➡️

Price action: 📈

Candles: ⬜

Key Support / Resistance: 15 Apr trough low @ 1.22 / 12 Apr peak high @ 1.49

Commentary: In the March update I noted “A close above 0.995, but preferably also the long term downtrend ribbon is required to signal the commencement of a new long term uptrend.”

It is great to see this has pretty much played out precisely with the WR1 price hardly looking back since it closed above the dynamic supply of the long term downtrend ribbon.

After the 12 April peak at 1.49, demand reasserted itself above both trend ribbons, indicating these are now acting as zones of dynamic demand.

Given the strength of the short term trend, rising peaks and rising troughs, and a predominance of demand-side candles, I must conclude that the demand-side is very much in control here.

I suggest this remains the case while the price continues to close above 1.22, but as a last-resort, above the short and long term trend ribbons.

1.49 is supply, and yesterday’s supply-side candle demonstrates there is some latent supply lurking around there. I’d view the next white candle with a close near or above 1.49 as a signal any supply at 1.49 has been dispensed with. 1.70 is the next point of supply after 1.49.

A word on the conspicuously absent

In case you were wondering, I did review the charts of several other popular ASX lithium stocks as part of my analysis of the sector. Don’t shoot the messenger here – each of the following stocks remains mired in well-established short and long term downtrends – simply, there aren’t enough signs that demand has any control, and therefore that a full write up is warranted:

Atlantic Lithium (ASX: A11), Argosy Minerals (ASX: AGY), Arizona Lithium (ASX: AZL), Core Lithium (ASX: CXO), Delta Lithium (ASX: DLI), Global Lithium Resources (ASX: GL1), Galan Lithium (ASX: GLN), Lake Resources (ASX: LKE), Loyal Lithium (ASX: LLI), Piedmont Lithium (ASX: PLL), Patriot Battery Metals (ASX: PMT), Sayona Mining (ASX: SYA).

On the other hand, these charts showed at least some signs demand was creeping back in and might be worth you while keeping an eye on to see how they develop:

  • Develop Global (ASX: DVP) – rangebound below key point of supply 2.59 and the long term downtrend ribbon. A close above both would be interesting.

  • Ioneer (ASX: INR) – short term uptrend is just hanging in there, with the short term uptrend ribbon providing some support. A close above 0.23 would confirm demand-side control and commence a new long term uptrend

  • Lithium Energy (ASX: LEL) – rangebound below key point of supply 0.62 and the long term downtrend ribbon. A close above both would be interesting.

  • Prospect Resources (ASX: PSC) – I suspect it’s switching to copper (hey if you can’t beat ‘em join ‘em!), hence the pop on 10 April. Either way, a picture of excess demand with few points of supply in the way.

  • Vulcan Energy (ASX: VUL) – doing its best impersonation of an attempt to start a new long term uptrend! Flirting with dispensing with the long term trend ribbon. A close above 3.64 may prove decisive, it certainly commences a new long term uptrend for me.

Demand and supply are always shifting, and trends change on a regular basis. What looks like a lost cause today, could over the course of just a few weeks, develop into a highly prospective turnaround setup.

Don’t be annoyed if your favourite lithium stock wasn’t appraised very highly by my technical model this time around. Rest assured, if excess demand returns, it will 100% show up in my charts, and I’ll be sure to give it the respect it deserves when that occurs!


Carl’s Technical Analysis Methodology Key

Trends (ST Trend ribbon: 21 & 34 EMAs || LT Trend ribbon: 144 & 233 EMAs)

⬆️ = Uptrend, the ribbon is rising indicating a higher probability the market is in a general state of excess demand

⬇️= Downtrend, the ribbon is declining indicating a higher probability the market is in a general state of excess supply

➡️ = No trend, the ribbon is flattening indicating a higher probability the market is in equilibrium

Price Action

📈 = Rising peaks and rising troughs indicating buy-the-dip activity and supply removal (i.e., indicating a higher probability market is in a general state of excess demand)

📉 = Falling peaks and falling troughs indicating sell the rally activity and demand removal (i.e., indicating a higher probability market is in a general state of excess supply)

⬅️➡️ = Neither of the above scenarios, market price action is indecisive

Candles

⬜ = Predominantly demand-side candles in the recent past, i.e., white bodies and or downward-pointing shadows (i.e., indicating a higher probability market is in a general state of excess demand)

⬛ = Predominantly supply-side candles in the recent past, i.e., black bodies and or upward-pointing shadows (i.e., indicating a higher probability market is in a general state of excess supply)

⬜⬛ = Mixed, i.e., indicating no discernible trend towards demand-side or supply-side candles in the recent past

Written By

Carl Capolingua

Content Editor

Carl has over 30-years investing experience, helping investors navigate several bull and bear markets over this time. He is a well respected markets commentator who specialises in how the global macro impacts Australian and US equities. Carl has a passion for technical analysis and has taught his unique brand of price-action trend following to thousands of Aussie investors.

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