Rising LME stocks (up nearly 12% this week to their highest levels since June 2006), slackening demand from stainless steel producers and strong bearish sentiment have joined forces to drive nickel to its lowest level since early November 2006. Trying to identify support for this once robust market has proven difficult of late, but the combination of chart support around $30,000/mt and a 61.8% Fibonacci retracement of the entire move from the March 2006 lows to the May 2007 highs may just do the trick.

Assuming that the support in this area actually holds up this time around as I expect it will, the question that comes to mind is this: "With all the negatives impacting nickel right now, is this really a market one should enter on the long side?" Well, there is an old adage in this business: "You gotta buy when ya hate it and sell it when ya love it."

Now, in no way am I trying to treat the serious decision of committing investment capital with a casual, light-hearted attitude or flippant manner. But "buying into weakness" when everyone else is selling, is often a successful strategy. Countless examples could be used, but silver in the spring of 2006 comes to mind.

Here's a scenario that in many respects parallels the recent events in nickel. Silver had just put in a big, headline-making run from $8.30 an ounce in December 2005 to the May 2006 peak at $15.20; four weeks later, silver had collapsed to $9.60 an ounce and nearly everyone was writing off the market as "finished." But those who summoned up the courage to enter the market when conditions looked the most dismal were treated to a stirring rally that saw prices shoot back to $13.25 by the first week in September.

Of course, no one can state that such a remarkable recovery will now take place in nickel; prices could flatten out or explore even lower levels. But it is my opinion, that (1) the recent sell-off has been overdone, (2) there is good chart support in this area and (3) that support just happens to match up with a widely followed Fibonacci retracement. Clients are advised to consider current levels as a good entry zone; after all, prices this low have not been available for nearly 10 months.

A typical recovery rally, if started from this level, would retrace about 38% of the recent $24,000/mt sell-off and could carry nickel back to near $39,000/mt. If the projected rally does develop, it is likely to be a tradable event. Buy nickel now...