CPO Futures – Bears Take Charge In The Short Term

OBSERVATIONS: Two global economic powers – the US and China – have, through word and deed, turned the screws on global financial and commodity markets, though that effect was not their respective primary objectives.

China’s ongoing moves to tighten up on credit, seen as a change in monetary policy to cool the rapid growth in that country’s economy, continue to dog world commodity markets, palm oil included.

But it was US President Barack Obama’s announcement last week of plans to clamp down on US banks’ proprietary trades in world financial and commodity markets that was primarily responsible for last week’s slide in world financial and commodity markets.

The Dow Jones Industrial Average, now at 10,172.98 points, posted the worst weekly loss in nearly a year (prior to the slide into the March 2009 low).

Agricultural commodities were more badly hit than most others. The US soyabean oil March 2010 contract tumbled 82 points or 2.18 per cent to settle at 36.71 US cents a pound,

But palm oil was not as badly affected as was feared, probably because it had earlier been depressed to extremely oversold levels and was prime for technical bounces, which it did on more than one occasion.

The actively-traded benchmark April 2010 contract dropped in intra-week trade to just a hair above the RM2,400 a tonne level, before recovering on short-covering activity to close last Friday at RM2,455 a tonne, still down RM37 or 1.29 per cent over the week.

Conclusion: The immediate overhead resistance level is RM2,560 a tonne and any technical rallies or bounces to near that level could be viewed as good shorting opportunities, given that this market is still in bear mode.

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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