OBSERVATIONS: Still smarting the fallout from China’s change in
monetary policy – from loose to tight – the Kuala Lumpur CPO futures
market slid further down the price chart in an extension of the
previous week’s slide. Bearish sentiment was compounded by the latest –
and bearish – Malaysian Palm Oil Board (MPOB) report on December 2009
trade data and end-2009 stocks.
The benchmark March 2010
contract plummeted to a seven-week low before settling last Friday at
RM2,487 a tonne, down RM176 or 6.61 per cent over the week.
central bank increased bank reserve ratios and nudged interest rates
higher in the interbank market last Tuesday for the second time in a
week in a sign that authorities may be trying to cool the rapid growth
in that country’s economy. China’s credit tightening moves have
unnerved world soyabean and soyabean oil markets, not least because it
accounts for import trade of between 50 and 60 per cent of the world’s
production of soyabeans.
The local palm oil market felt the
bearish knock-on effect of the 282-point or 6.99 per cent plunge in the
US soyabean oil futures March 2010 contract to 37.53 US cents a pound.
As if sentiment was not bearish enough, the MPOB put further weight on
the market with its latest monthly report on trade data, unveiled last
MPOB report was more bearish than expected: December 2009 production,
put at 1.22 million tonnes, was lower than November’s by some 75,000
tonnes; but exports, at 1.501 million tonnes, were lower by 292,000
tonnes. The upshot: end-2009 stocks not only piled up to a much
higher-than-expected 2.239 million tonnes, up a 304,000 tonnes or 16
per cent over that at the end of the previous month, the figure was
just a whisker short of the end-November 2008’s record high stock
figure of 2.266 million tonnes.
This market will probably tread lower price levels this week.
most those stubbornly holding on to long (buy) positions can hope for
is for this market to do a technical bounce before it resumes its
However, the US bellwether soyabean oil
futures and the Dalian futures exchange will likely dictate the pace
and direction of the local market, with the MPOB report ameliorating or
aggravating the pace and direction of price changes.
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
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.
subject expressed above is based purely on technical analysis and
opinions of the writer. It is not a solicitation to buy or sell.