CPO Futures – Extended Technical Rebound Likely

OBSERVATIONS: The Kuala Lumpur CPO futures market took a steep plunge at first, dragged down by weakness in world commodity markets overall on concerns over the US-China trade spat, but rebounded on speculative buying interest ahead of the Hari Raya Aidilfitri holiday.

The actively-traded December 2009 contract fell in early trade to test the psychological RM2,100 a tonne level, but rebounded in the later part of last week on speculative buying interest, evidenced by the burgeoning of the total open interest position to 88,636 open contracts from the previous week’s 85,950 open contracts, a notable increase of 2,686 open contracts or 3.13 per cent as market players took up new long (buy) positions.

The December 2009 closed last Friday at RM2,190 a tonne, up RM58 or 2.72 per cent over the week.

Early jitters over the US-China trade spat, because of the US administration’s imposition of heavy import duties on made-in-China tyres, were quickly shrugged off by market players who came in to take up fresh long (buy) positions.

That was surprising, considering the latest export estimates from export monitors Societe Generale de Surveillance (SGS) and Intertek Agri Services (IAS).

SGS and IAS put September 1 -15 exports of palm oil at a combined average of 534,000 tonnes, down a whopping 132,000 tonnes or 19.84 per cent compared to their estimates for the corresponding period in August.

Conclusion: Based on the technical position as of last Friday, this market should see an extension of its technically-inspired rebound in early trade this week.

However, because of the market’s two-day closure for public holidays, foreign edible oil markets, particularly the US soyabean oil futures market, could influence how the local market performs when it reopens tomorrow. 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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