Is the low in Lithium finally in? If it is, which lithium stocks might be a buy?

It has been an incredible couple of weeks for Aussie resources investors, but particularly those invested in lithium and uranium stocks. Here’s a quick recap of some of the major bullish catalysts that have triggered substantial rallies in these sectors, and in the S&P/ASX Resources (ASX: XJR) sector in general.

Lithium

• The world’s biggest manufacturer of EV batteries, China’s Contemporary Amperex Technology Co. (CATL), announced it had suspended production at its mainland lepidolite mines – this is seen as a positive for lithium minerals prices as it reduces some of the existing supply overhang

• Major broker Citi called a major short term low in lithium minerals prices was in, predicting that the price of lithium carbonate could rally “20-25% over the next quarter”.

Uranium

• Comments from Russian president Vladimir Putin that his country would consider limiting its exports of uranium (along with other minerals) in retaliation to Western sanctions.

• Microsoft signs a 20-year power purchase agreement with major US nuclear power producer Constellation which will see that company restart the Three Mile Island Unit 1 nuclear power plant. Markets extrapolated other major IT power consumers (e.g., data centre operators) may also seek similar low carbon emission energy deals with utilities.

• Global financial institutions including Goldman Sachs, Citi, and Bank of America pledged support for tripling global nuclear energy capacity by 2050, potentially easing financing challenges for the sector

Both / Resources in general

• China announced several major monetary policy stimulus measures aimed at stoking credit growth and consumer spending, promises more monetary and fiscal policies to come

Let’s just say it’s never been a better time to do this sort of analysis, but there’s too much to cover across lithium and uranium in one article. So in this Part 1 of a two-part series, I’ll cover the key lithium minerals charts as well as the major US and ASX-listed lithium producers. Then on Monday, I’ll tackle the same for Uranium (sorry U-bulls, you’ll have to wait a few more days!). Let’s dive in!

Is the low in Lithium in?

Price increases in ASX-listed lithium stocks of between 10-20% have not been uncommon over the last two weeks. This sounds fantastic for long-suffering lithium investors, but prior to the latest rally, many lithium stocks were down over 80% from their 2022 peak. The maths suggests that a 20% rally on one’s remaining 20% investment – still leaves one nursing losses (theoretically 76% to be precise!).

Let’s dial down the rumours, news, and rhetoric, and check the charts to try and answer the question: Is the low in ASX lithium in?

*Check out my TA Primer – It’s essential to understanding the views expressed below*

Lithium Minerals: The dead cat bounces again?

SMM Lithium Carbonate Index (click here for full size image)

This is probably the best place to start. Lithium carbonate is generally considered to be the lowest common denominator for lithium minerals used in electric battery production, so much so that other lithium minerals are often expressed in Lithium Carbonate Equivalent (LCE). I start with this chart to show the utter devastation in lithium minerals pricing since the 2022 peak.

The run up prior to the peak (not shown / off left hand side of chart) was just as spectacular, and when considered with the subsequent decline – constitutes a classic boom-bust commodity price cycle. I called the top in lithium in various media and social media outlets in early 2023 (you can Google these) – not because I had any prior knowledge of the impending downturn – but simply because the price action and trends had changed.

I don’t do narratives – only price action and trends. In my experience, when the price action transitions to falling peaks and falling troughs, and when my trend ribbons stop acting as zones of excess demand and begin to act as zones of excess supply, the market is moving into a state of excess supply. This means lower prices are more likely than higher prices.

I never know how long a particular state of excess supply will last, or how far prices will fall – the model will signal the end when it does. But consider, if falling peaks and falling troughs as well as trend ribbons transitioning to zones of excess supply are the triggers for a transition to long term downtrend – then the opposite must be true for a transition to long term uptrend.

Looking at the above chart, there is some slight good news here. Since 10 September, the lithium carbonate price has moved back to higher peaks and higher troughs. Unfortunately, it’s difficult to see given how flat this last move is – and that’s the main issue here – the demand side doesn’t appear very motivated enough yet and/or the supply side remains very active.

Both trend ribbons are still set in downtrends and there is no sign yet that they have stopped acting as zones of excess supply. So, on this basis, I cannot say the low in lithium carbonate is in. I expect it would take a sustained rally of higher peaks and higher troughs to close above CNY 100k/t before this could occur.

Benchmark Nov-24 lithium carbonate futures (GFEX) (click here for full size image)

Futures are so-called because they give some indication of future pricing, right? So perhaps the chart of GFEX Lithium Carbonate Futures may give us early warning that a potential trend change is on the way.

There are some positive signs that an intermediate (and I would go so far as to say), a “major” low is in here. Candles! There’s no candles on the spot pricing associated with the Lithium Carbonate Index, but we do have candles for GFEX futures. This means we can see inside the trends for signs the demand-side might be taking control of the price.

I note an increasing prevalence of white candles since the 71700 low, and that the price action is more prone to rising peaks and rising troughs. The rally from 69700 when the CATL news broke is greater than 10%, and so far, has not seen a close below 50% of this gain (this is usually a good sign an intermediate low is in).

The only candle since the 69700 low that concerns me is the 25 Sep black candle with an upward pointing shadow. It speaks of motivated latent excess supply in the system. Until the price can close above its high of 79800 I suggest the supply-side remains in control of the short term price. A close above it, however, resumes higher peaks and higher troughs, and will likely set the short term trend ribbon as a zone of dynamic demand.

Should this occur, it would be enough to set 69700 as a major low – of the order of magnitude of 89900 back in December last year and 97200 from February. For 69700 to turn into the official “bear market low”, that is, assuming there’s a bull market somewhere in the future of this chart, I would need to see interaction with the long term trend ribbon. That’s possibly a 95000-100,000 proposition, so I suggest it’s a long way from here both in terms of price and time. 

SMM Lithium Hydroxide (click here for full size image)

This next chart features lithium hydroxide - a key electric battery precursor. It can be refined from lithium carbonate as well as spodumene (the lithium mineral produced by most Australian “hard rock” producers). To see this chart so set in its short and long term downtrends is concerning. It has continued to decline even as there are some early signs lithium carbonate pricing might be turning. Further, it is now trading at a significant discount to lithium carbonate.

We are getting into the fundamentals here, so I’d better be careful and move on…but what does this chart say about the strategy of Chinese converters, and whether the market is still flush with inventories? OK…next chart please Carl!

S&P Global Platts Spodumene 6% Australian Assessment (click here for full size image)

As mentioned above, this is the most important chart for Australian hard rock producers like Pilbara Minerals, Mineral Resources, and IGO. I only have data on the S&P Global Platts Spodumene 6% Australian Assessment going back to late last year, so you can’t see the 85-odd percent decline from over US$8,000/t, but the downtrend is still clearly evident.

Like lithium carbonate pricing, there’s only a very modest recovery here, and like lithium carbonate, it’s also too early to call the low in spodumene. A continuance of rising peaks and rising troughs to above the short term downtrend ribbon would be welcome, as would be a close above what I peg as critical supply now at US$830/t.

If the lithium low is in, which stocks might be a buy?

Let’s look at the charts of a few key lithium stocks, starting with China’s CATL, then moving to the USA majors:

Contemporary Amperex Technology Co. (SZSE: 300750)

Contemporary Amperex Technology Co. chart (click here for full size image)

I’m going to move through this quickly now, as there are many stock charts I want to get through and they’re generally quite similar. Remember, all I am looking for in each is good candles, good price action, and good interactions with my trend ribbons – check the Primer for more details.

This is the most promising of the overseas lithium stock charts. It’s the only one I classify as being in a long term uptrend, and therefore the only one I could consider buying. The candles, price action, and volume since 23 Sep have been particularly strong indications of increasing demand-side control and supply removal. The close above the May peak is also a good indication supply is backing away here. All of this means that the August highs around 250 are not out of the question.

Albemarle Corporation (NYSE: ALB)

Albemarle Corporation chart (click here for full size image)

There are some minor positives here against the backdrop of a continuing massive long term downtrend.

A base pattern (i.e., a period of sideways consolidation indicating equilibrium between demand and supply) has formed since late June – the demand-side has stepped up to at least meet the supply-side. More recently, the price action has improved to again show rising peaks and rising troughs. Also, the price action is being supported, not resisted, by the short term trend ribbon. The last candle (26 Sep) is a strong demand-side showing.

The elephant in the room remains the long term downtrend ribbon. It has an excellent track record in terminating rallies. I would need to see the price do here what the CATL price has done, i.e., close above the long term uptrend ribbon, then retest, and hold it. Only then could I call a new long term uptrend in ALB.

In the meantime, there are some decent signs that at least an intermediate low is in and that the massive supply zone between 102-107 may be tested in the near-term.

Lithium Americas (NYSE: LAC)

Lithium Americas chart (click here for full size image)

Ditto ALB. Although, I would say a better base pattern here. The 26-Sep candle and volume combination speaks of new demand-side control and supply removal. The short term trend is supporting/not resisting price. Again, it’s all about the long term trend ribbon from here, but I can’t see any reason not to call at least an intermediate low in here too.

What’s an “intermediate low” I hear you say? It means that it’s too early to call a new long term uptrend has begun, merely that the short term price action and trend are now up, and the short term trend ribbon is acting as dynamic demand. Intermediate lows that aren’t confirmed with long term trend change have a habit of being broken!

Sociedad Quimica y Minera S.A. (NYSE: SQM)

Sociedad Quimica y Minera S.A. chart (click here for full size image)

Almost identical to the ALB chart. An intermediate low is in, the long term trend ribbon must be dealt with, but there are clear signs the demand-side is back in control of the short term price action.

Global X Lithium & Battery Tech ETF (NYSE: LIT)

Global X Lithium & Battery Tech ETF chart (click here for full size image)

This is an important chart here as it reflects all the charts we’ll discuss here today. I love gap ups. They are the epitome of demand-side control, and I note a few here since the 10 Sep low. The 26 Sep candle brings us to the all-important long term downtrend ribbon. It’s been over a year since LIT has tasted the rarified air above it. Zoom the chart out (not shown) to see what happened that last time. It wasn’t above the long term trend ribbon for long…

Ditto that at least an intermediate low is in here. There’s more work to do, but I see positive short term signs the demand-side is very much in control for now.

OK (takes deep breath!), finally, let’s check up on the charts of the key ASX-listed lithium companies:

Pilbara Minerals (ASX: PLS)

Pilbara Minerals chart (click here for full size image)

This is one of the few stock charts for which I maintain a full markup as I regularly post about it on Twitter/X. Today’s candle could provide an important breach of the major supply zone up to 3.12. If it occurs, it bolsters a dramatically improving short term technical picture for PLS. The rally since 2.31 is consistent with strong demand-side control, punctuated by excellent demand-side candles and accompanied by volume consistent with short covering and supply removal.

The price action is back to rising peaks and rising troughs, and the shallowness of pullbacks speaks further to the strong nature of short term demand-side control. Demand moves to 2.75-2.86 – as long as the price continues to close above this zone, the short term trend remains intact.

With 3.12 cleared (if it occurs), the next challenge is the long term downtrend ribbon. So, like so many others in this review today, there remains more work to do here. But PLS shareholders can take plenty of heart in the rally so far, and I expect 2.31 will require a major calamity to be challenged again any time soon.

Mineral Resources (ASX: MIN)

Mineral Resources (click here for full size image)

There’s also an iron ore rally / China stimulus aspect to this chart which probably explains some of its greater angle of upside-attack since the 9 Sep low than its peers. Certainly, quite a few things have gone right for MIN in terms of news items recently and it makes one wonder where it would have been had this good fortune not occurred!

But it did, and the demand side is very much in control of the short term price action now, as evidenced by a predominance of demand-side candles and steep price action since the  9 Sep low. The short term trend ribbon should in theory begin to act as a zone of dynamic demand for here, while the long term trend ribbon remains the key overhead point of supply. There’s also plenty of static points of supply kicking in above 50, so some caution is warranted on this basis.

As with all of these fledgling rallies, watch out for the recurrence of supply-side candles (i.e., those with black bodies and/or upward pointing shadows), as well as lower peaks being set. This would indicate the supply-side is creeping back in, potentially to once again seize control of the price!

IGO (ASX: IGO)

IGO chart (click here for full size image)

Don’t forget IGO is also a nickel stock. This is possibly why its chart is lagging behind many of its peers. Still, I do note the beginning of a decent base pattern here, as well as a growing prevalence of demand-side candles, and improving price action. The short term trend ribbon also appears to be acting as dynamic demand. Lots more work needs to be done in IGO’s technicals, but at least an intermediate low appears to be in for now.

Arcadium Lithium (ASX: LTM)

Arcadium Lithium chart (click here for full size image)

Ditto on IGO. A promising start to what could be confirmation that an intermediate low is in. Still, this is lightyears away from my kind of chart. (If you want to see what an actual uptrend looks like, you’re barking up the wrong tree reading this lithium review…Be sure to check out my Daily ChartWatch Scans lists which includes my favourite ASX uptrends.)

Liontown Resources (ASX: LTR)

Liontown Resources chart (click here for full size image)

Another one that could be called a laggard, certainly compared to the likes of PLS and MIN. But, there’s some technicals to like here in the form of a growing prevalence of demand-side candles, as well as a return to rising peaks and rising troughs. The price is again above the short term trend ribbon, but the ribbon is yet to swing back to neutral. The dynamic supply of the long term downtrend ribbon is a long, long way away…but I am confident that at least an intermediate low is in here.

Vulcan Energy Resources (ASX: VUL)

Vulcan Energy Resources chart (click here for full size image)

This chart is quite different from the others. I note the long term trend here is up, albeit still in its very early stages. The price action has recently improved, and the August-September consolidation may eventually serve as a base from which to push higher. Candles are not as convincing demand-side showings as they could be just yet, but if we were to see a growing prevalence of white candles with high closes and or long downward pointing shadows, it would give me greater confidence that a resumption of the move begun in April-May is possible.

Develop Global (ASX: DVP)

Develop Global chart (click here for full size image)

Another chart that one wonders where it would be if CATL had not conceded on its lepidolite production. Neither here nor there for me, but at least it is beginning to interact with its long term downtrend ribbon. There’s plenty of historical supply above 2.50 if it can clear the long term uptrend ribbon, though, and the price action more generally (i.e., looking back to the start of the year) is far too choppy and sideways for my liking. I’m happy to keep an eye on it though, a clean price action move above 2.50 would be interesting.

Wildcat Resources (ASX: WC8)

Wildcat Resources chart (click here for full size image)

Going to go ditto compared to the cohort of fledgling short term uptrends within a broader well established long term downtrend we’ve seen so many times thus far. A close above the long term downtrend ribbon would be interesting, but until then, there’s very little to interest me here.

Sayona Mining (ASX: SYA)

Sayona Mining chart (click here for full size image)

Two words: “Ho” and “Hum”. I’ll take another look at SYA when it begins to interact with that massive long term downtrend ribbon.

Core Lithium (ASX: CXO)

Core Lithium chart (click here for full size image)

A decent base pattern here…but I have to squint to see that new short term uptrend! Like SYA, there’s just so much damage here. If there’s a lesson in today’s review, it’s not about picking the bottom in these charts – it’s about seeing how much value there is in simply following the trend. How much better would you have been if you knew about my trend ribbons 18 months ago!? 

Piedmont Lithium (ASX: PLL)

Piedmont Lithium chart (click here for full size image)

I think you can figure this one out, after all, my model is consistent. It doesn’t concern itself with why a stock should be going up or down, simply that it is going up or down. It assumes that market participants know more than we do about what’s really going on, and that they act accordingly with their demand and supply.

I trust that after reading this lithium sector review in conjunction with my Primer, you’ll be able to suitably address the rest of the lithium stocks in your portfolio (or any other stock for that matter).

Conclusions: Is the low in Lithium in?

I can’t tell the future. To try to do so is pointless. My brand of trend following technical analysis does not prognosticate, it can only react. With this in mind, it is clear from the above charts that the supply side has backed off significantly over the last couple of weeks and that the demand-side appears to be increasingly more active. But in nearly all cases, more needs to be done before my model would say many of the charts shown here are in long term uptrends.

One positive is that in most cases, at least an intermediate low point has been set. On a case by case basis, this means that as long as the price continues to close above this low, there remains the possibility long term trend change may still occur. 

In my experience, the “when to buy” is far less important than the “how much to buy”. When trying to judge a major low, I prefer to gradually move into a trade after I see at least preliminary signs the long term trend is changing. If the price action continues to reflect growing demand-side control, I am allowed to continue to increase my position. If the price action doesn’t warrant it, I pause or get out. In this way, by the time the trend change does occur, I already have some skin in the game.

In short: I don’t fear missing out on picking the bottom, so I don’t frett not getting my whole lot in at the low. This is the overwhelming desire of greedy gamblers! The only thing I fear is not following my model.