ChartWatch Markets: Lithium's rally goes from strength to strength as "third great wave of adoption" begins

In today's edition of ChartWatch Markets, we'll be covering the technicals for:

• Nasdaq Composite
• S&P/ASX 200 (a.k.a. The Old Tin Pot!)
• Lithium Carbonate Futures (Benchmark month, back-adjusted) GFEX
• Australian Spot Spodumene Concentrates ($US/mt)

Nasdaq Composite Index

Analysis

"Unopposed".

I just don’t think there’s a big enough, motivated enough chunk of supply that’s willing to get in the way of this Santa Claus Rally.

Last night’s "nothing" candle kind of tells us this:

• A pop-up on the open, a very small downward pointing shadow indicating hardly any motivation among the supply side—plus equally enough conviction among the demand-side to prevent any pullback. The close was near the high of the session.
• The lowest volume since Thanksgiving Eve, and before that, in the last 2-months. They’re doing it with by firing as little ammunition as possible — just the way they like it at this time of year! 🤦

While both sides of the market are complicit in this customary and systematic marking up of prices into year-end, it should in theory facilitate a continued move back towards 23705-24020. A break to new highs? You never know your luck in December! 🎲🎲

So, it’s a case of stay the course… that is, until we see the typical fingerprints that there’s some decent supply coming into the market to take advantage of the artificially inflated prices:

• Black bodied candles and or upward pointing shadows — the longer these are — the greater the motivation among the supply-side.
• Volume! Volume equals interest — both in terms of cash wanting stock, but also in terms of stock wanting cash.

Big supply-side candles (i.e., above average volatility — check the OTR) on above average volume = Meaningful supply-side engagement = ⚠️🚨

Until then... Ho, ho, hold on for further upside! I.e., it's HOFU all the way! 🛷🎶

View

I think somewhere between 1/2RP to 2/3RP is the right place to be (RP = Risk Position*). An emphatic close above 23705 with a strong demand-side candle (i.e., long white-body and or long downward pointing shadow) that closes at or very near its high would be sufficient to move to the 2/3RP mark. A close above 24020, naturally, would warrant FRP (Full Risk Position). (*My RP reflects my personal allowable capital allocation limit for my investments in US stocks. 1/2RP is 50%, 2/3RP is 67% and FRP is 100%).

Key levels

The trough at 22692 is the closest point of demand – a close below it would signal the demand-side has lost control of the Comp's price. On a close below 21898 the short term trend is unequivocally down and the long term uptrend is likely under significant pressure = ⚠️ 23705-24020 is the nearest critical zone of supply – the Comp must close above this zone with a strong demand-side candle to confirm the demand-side is unequivocally back in control of the Comp's price.

S&P/ASX 200 (The Old Tin Pot!)

Analysis

Two sectors beat the benchmark’s +1.1% performance today:

Real Estate (XPJ) (+3.1%) = Bond proxy vs benchmark Aus Gov bond yields pared back today…

Financials (XFJ) (+1.5%) = Arguably also bond proxy… but we know what’s really going on here!!! 😉

As I’ve noted before… those “lurking” banks are the best tool one can hope for if one wants to “massage” a few index points into the Old Tin Pot.

• Massive weighting = biggest bang for your buck.
• Notoriously illiquid = a little bit of targeted cash inflow goes a disproportionately large way
• Ultimately, largely a “risk-off” investment = relatively safe if the market dips out of the blue because some real news hits…

It’s the combination of the first two, however, that makes this trade so attractive for those fundies looking to juice their 6-months to the end of December returns.

And good luck to them, I say! The more the merrier… 🎅!

• We now have two very decent demand-side candles, pushing off what has been shown to be a credible zone of demand in the form of the long term trend ribbon and 8547-62. ✅
• We’re back above the old demand-zone-risk-of-acting-as-supply-zone of 8731-38. ✅
• Today’s close was very close to the high of the session indicating excess demand persisting into the close = MOTN to continue tomorrow. ✅

In summary, it’s a hold of the prevailing longer term bull market dynamic, and (now) an increasingly convincing push back towards the highs.

(Of course, all the above requires you to suspend your belief over what the volume is telling us = zero conviction… but why let the facts get in the way of a good Christmas miracle!? 🎁)

Low volume here = Total complicity among the demand-and-supply-sides with respect to what’s going on.

At some point, supply will break ranks and do their thing — trying to capture as much of the inflated price regime as possible. But that could be weeks, or seasonally, even months away.

So, we call the spade the spade at the same time as acknowledging the animal that appears to be walking like a duck and making a quacking noise...🦆

Yet, as always… we watch those candles for the telltale fingerprints of supply! Until then… have a very merry Christmas and a happy New Year everyone! 🥳

View

My model allows for 1/2RP (i.e., my personal allowable capital allocation limit for my investments in Australian stocks is 50%).

Key levels

8547-8562 is the new closest zone of demand. A close below this price would confirm the supply side is back in control of the ASX 200's price. In theory though, the short term and long term trend ribbons may now begin to act as a zone of dynamic demand (presently 8555-8666). After 8809-8843, the next key zone of supply is the old point of supply at 8876, and then it's 9110-16 above that!

Lithium Carbonate Futures (Benchmark month, back-adjusted) GFEX

Analysis

What can I say… that escalated quickly! 🥊💥 That really jumped up a notch...🤣

It just seems all too easy now for lithium.

You couldn’t give the stuff away about 6-months ago, well on June 23 more specifically — when benchmark GFEX carbonate futures made their all-time low of 60740 (this price is back-adjusted, the actual price was around 57k off the top of my head!).

Now it’s a mad scramble to transform cash into commodity.

3-years down = 90% wiped off the peak price.

3-months up = Close to 100% added.

Of course, the math of things going down a lot and then up again means that +100% is a recoupment of closer to 10% of the original… 🤦

And why the sudden change of heart and intent among market participants? 🤔

• Is the anti-involution pulse that swept through Chinese industry in June-July?
• Is it the closure of millions of marginal tonnes from shuttered Chinese lepidolite mines?
• Is it the continued burn of EV take-up (seen a few BYD’s around have ya! 😉)
• Of is the emergence of BESS as the “third upcycle” as UBS called it recently?

Can I offer: It’s all of the above but really none of the above.

Because here’s the real answer — the answer that even the most die-hard lithium zealot cannot deny:

The lithium price is going up because there’s more demand for it than supply and this is forcing those on the demand-side to bid increasingly higher prices to convince the supply-side to part with their holdings.

In short: D > S = P⬆️

The irony is that those who expounded the same plausible narratives they’re patting themselves on the back for the holding through the 90% wipeout — believe this vindicates their beligerence through the cycle: “See, I told you so”.

But my loyal readers — you know better! You don’t deal in plausible narratives anymore. Nope, you deal in the most basic tenet of economics — the driving force between all transactions on this planet since the dawn of commerce: D vs S = P.

And thank goodness for that! What an amazing BS filter, ahem, plausible narrative filter D vs S = P is! 🙅🐂💩

Ladies and gentlemen of the jury… I rest my case. For 2025 at least!

It has been an absolute pleasure riding shotgun with you through some of the most interesting, challenging, but I also trust, rewarding, year in financial markets in a generation.

All the best for your holidays and I look forward to both your safe and happy return, and mine, on January 5 👋

View

You know the gig, as long as the short and long term uptrends remain intact (⬆️/⬆️), the price action smacks of demand-side control (i.e., rising peaks and rising troughs 📈) and the candles remain predominantly demand-side in nature (⬜/⬇️shadows) = My model allows for an add risk stance "+R" for those looking to increase their risk exposure, or a maintain current risk stance "=R" for those comfortable with their present risk exposure.

Key levels

122450 is the closest historic point of supply — we should be attentive to major supply-side showings there and into 130350. Previous points of supply at 99880-10440 are likely to act as the closest zone of demand, at that area will roughly coincide very soon with the short term uptrend ribbon (presently 97560-101665). Lithium carbonate's short term uptrend remains intact until its price closes below those two zones.

Australian Spot Spodumene Concentrates ($US/mt)

Analysis

This is a chart of total demand-side control:

• Well established and strengthening Short and long term uptrends = ⬆️/⬆️
• Price action = Rising peaks and rising troughs 📈 plus very strong trough-peak phases versus very shallow peak-trough phases shows strong demand-side intent and little supply-side engagement — even as prices rocket! 🚀

View

My model allows for an add risk stance "+R" for those looking to increase their risk exposure, or a maintain current risk stance "=R" for those comfortable with their present risk exposure.

Key levels

Previous points of supply at 1223-1245 are likely to act as the closest zone of demand, at that area roughly coincides with the short term uptrend ribbon (presently 1185-1245). Aus. Spodumene's short term uptrend remains intact until its price closes below those two zones.

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