CPO Futures – Bears Are Still Lurking

OBSERVATIONS: The Kuala Lumpur CPO futures market took a pause

for breath last week, a welcome respite for market players battered by

this market’s plunge from around the RM2,700 a tonne level since the

beginning of this year.

Light buying by market players heartened

by better-than-expected export estimates and short-covering to nail down

profits ahead of the extended weekend (the market is closed today for

the Federal Territories Day public holiday) helped lift and kept this

market above the psychological RM2,400 level. Thus, although this

market fell in early trade to a 10-week low of RM2,393 a tonne, it

managed to claw back much lost territory before closing last Friday at

RM2,442 a tonne, basis the actively-traded April 2010 contract, still

down a nominal RM13 over the week.

Export monitors Societe

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

January 1-25 exports at a total combined average of some 1.21 million

tonnes, up a whopping 205,490 tonnes or 20.43 per cent compared to that

shipped out in the corresponding period in December 2009.

But

this market still is far from out of the woods.

The news from foreign edible oil markets was still overwhelmingly

bearish.

The strength of the US dollar also is acting as a

depressant factor. The greenback, in which world trade in palm oil is

quoted and transacted, has strengthened some 7 per cent against the

world’s other major currencies since December last year.

Conclusion:

Much of whether this market can maintain last week’s posture and keep

its nose above the psychological RM2,400 a tonne level depends on the

commodity’s January 2010 export performance – or specifically, whether

it can maintain the scintillating form displayed in its January 1-25

export performance. The January 2010 export estimates should be public

knowledge by now and should impact on tomorrow’s trading action.

The

immediate technical overhead resistance and support levels are RM2,510

and RM2,400 respectively.

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.

Leave a Reply