CPO Futures : Bear Takes Over Driver’s Seat

OBSERVATIONS: The bear has dislodged the bull from the driver’s

seat and is now firmly in control at the steering wheel in the Kuala

Lumpur CPO futures market.

This trade in places happened

last week when the benchmark third month contract – now the June 2010

contract – smashed and crashed through on the downside the erstwhile

RM2,630 a tonne short-term support level. The June 2010 contract

plummeted to a low of RM2,526 before liquidation profit-taking and

short-covering ahead of the weekend gave prices a last-minute lift. The

contract settled last Friday at RM2,577, down RM72 or 2.72 per cent

over the week.

Last week’s total turnover of 53,678 contracts for

the benchmarket contract was notably higher than the previous week’s

39,041 contracts, reflecting the bulge in selling activity.

The

sudden – and largely unexpected – sea change in investor sentiment has

puzzled many small retail market players. Palm oil’s fundamentals

(hitherto considered bullish) do not appear to have changed much.

Industry figures see the present heat wave crimping yields of palm

fresh fruit bunches even as, based on the latest export estimates, the

trend of exports is still up.

Export monitors Societe Generale de

Surveillance and Intertek Agri Services’ latest estimates put March

1-15 exports at a combined average of 654,000 tonnes, up 59,000 tonnes

or 11.75 per cent from thatin first-half February.

External

factors, however, are providing a discouraging ackdrop for the local

market. Strength in the US dollar and weakness in US soya-bean oil

futures, which also, technically, has gone into bear mode due to

expectations for a South American bumper harvest for soybeans, are

weighing on world edible oil markets overall.

Conclusion:

Market players will this week look to the March 1-20 export estimates

for leads.

But if the technicals are any guide this market, in

the present bear phase, well fall to as low as RM2,400, the next major

technical support level.

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.

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