CPO Futures — Bearish Sentiments Prevail

OBSERVATIONS: The Kuala Lumpur CPO futures market, following US

soyabean oil futures lead, fell through the former RM2,380 technical

support level last week, if only slightly. But the signs point to more

downside room ahead for this market even as it looks like it’s trying

hard to form a base.

The actively-traded September 2010

contract fell to an intra-week low of RM2,371 before settling at RM2,384

last Friday, down RM16 or 0.67 per cent over the week. Palm oil’s price

fall was in rough tandem with US soyabean oil futures for July

delivery, which fell 76 points, or 2 per cent, to close at 37.16 US

cents a pound.

World edible oil markets overall continued to

labour under the weight of expectations for a looming bumper South

Amercian soyabean harvest.

Forecasts for a super South

American soyabean harvest is not really new news, but it was what the

latest authoritative Hamburg-based Oilworld publication said that may

have turned the screws even tighter on world futures markets for

vegetable oils

Oilworld, an industry publication, raised its forecast for global

output of 10 oilseeds for 2010-2011 to a record 438.8 million tonnes,

from 438.7 million last year. It raised its Argentina soyabean estimate

by 0.7 million tonnes to 55 million tonnes compared to a

drought-affected harvest of 31.5 million tonnes. Its South American crop

forecast is 136 million tonnes, from 97 million tonnes last year, with

harvests ending last month, it said.

“Supplies of soyabeans

have become ample”, and soyabean stocks will be “substantial” until

August, which will have a bearish impact on edible oils prices, it said

in its June 11 weekly report.

CONCLUSION: The substantial

amassing of short positions between April 30 and June 18, during which

the total open interest position burgeoned from 78,027 open contracts to

63,191 open contracts, has yet to unwind. This suggests that this

market could see more downside ahead as bearish sentiment continues to

prevail, especially with the bearish prospect of a bumper South American

soyabean harvest.

HOW TO USE THE CHARTS AND INDICATORS

n 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.

n 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.

n 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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