Bulls Set to Push CPO Futures Price Higher in Short Term

OBSERVATIONS: The Kuala Lumpur CPO futures market ended last week

on the cusp of an ascension to a higher price plane in its present

short-term bull phase.

The market plunged at first to a low of

RM2,434 a tonne based on the benchmark October 2010 contract. After that

it made a U-turn soaring to a high of RM2,539, settling on Friday at

RM2,517 for a RM19 gain over the week.

Apart from falling from a

technically highly overbought position at the start of trade last week,

another reason why it plummeted in early trade was because of none-

too-encouraging export estimates.

Export monitors Societe

Generale de Surveillance (SGS) and Intertek Agri Services (IAS) put July

1 to July 25 palm oil exports at an average of 1.089 million tonnes,

down some 28,000 tonnes compared to that for the similar period in June.

With just over a month before the Hari Raya Puasa festival period

starting on September 10, the latest export estimates were

disappointing, considering that countries with high Muslim populations

like Pakistan would be stocking up now on cooking oil.

But

considering that export estimates of late have a tendency for volatility

volatile, market players may have considered the July 1 to July 25

export estimates an aberration. Much of how the market will perform this

week depends on the export estimate for the month of July, which

should be common knowledge .

Conclusion: While the

technical indicators are mixed on the immediate direction of this

market, the bullish US soya bean oil futures market, thanks to US dollar

weakness, has and will provide a positive backdrop that should enable

the market to poke through and go above the RM2,520 immediate overhead

resistance level in early trade this week.

HOW TO USE THE CHARTS AND INDICATORS

# THE BAR AND VOLUME CHART:

This is the daily high, low and settlement prices of the most actively

traded basis month of the crude palm oil futures contract. Basically,

rising prices accompanied by rising volumes would indicate a bull

market.

# THE MOMENTUM INDEX: This line plots the short/medium-term direction of the market and may be interpreted as follows:

(a) The market is in an upward direction when the line closes above the

neutral straight line and is in a downward direction when the reverse

is the case.
(b) A loss in the momentum of the line (divergence) when

prices are still heading up or down normally indicates that the market

could expect a technical correction or a reversal in the near future.

#

THE RELATIVE STRENGTH INDEX: This indicator is most useful when

plotted in conjunction with a daily bar chart and may be interpreted as

follows:

(a) Overbought and oversold positions are indicated when the index goes above or below the upper and lower dotted lines.

(b) Support and resistance often show up clearly before becoming apparent on the bar chart.

(c) Divergence between the index and price action on the chart is a

very strong indication that a market turning point is imminent.

The subject expressed above is based purely on technical analysis and

opinions of the writer. It is not a solicitation to buy or sell.

The writer welcomes comments and feedback. He can be reached at mavernwqmun@gmail.com

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