CPO Futures in Consolidation Mode

OBSERVATIONS: Caught in the swirl of almost equally strong and opposing demand-supply cross-currents in global edible oil markets, players held back from taking firm positions while they pondered which of the forces would prove the stronger. And while they pondered, the major global edible oil futures markets – US soyabean oil and the Kuala Lumpur CPO futures markets – ended up going nowhere.

The actively-traded October 2009 contract was traded up to a high of RM2,184 and down to a low of RM2,063 before settling last Friday at RM2,122 a tonne, down a mere RM1 over the week.

And the US soyabean oil futures August 2009 contract was equally subdued, with the August 2009 contract closing at 33.89 US cents a pound, up a mere 0.09 US cent over the week.

The local palm oil futures market got a strong fillip at first from the latest – and encouraging – export estimates. Industry monitors Societe Generale de Surveillance and Intertek Technical Services put July 1-20 exports at a combined average of 894,000 tonnes, up some 104,000 tonnes or 13.0 per cent compared with that shipped out in the similar period in June.

The jump in export demand apparently came from orders from India, which “experts” expect will overtake China this year as the world’s No.1 importer of vegetable oils. Because of unseasonally low monsoon rainfall, India is reportedly facing a shortfall in its production of soyabean oil, groundnut oil, and other vegetable oils

The Indians are not likely to face a shortage of cooking oil though. That’s because Indonesia has just cut its palm oil export tax to zero from 3 per cent in July and reduced the crude palm oil base export price to US$574 a tonne from US$683 (US$1 = RM3.54) in July, in an apparent bid to attract and cash in on heightened Indian demand ahead of Diwali, or the Festival of Lights.

On the other side of the Pacific, however, the US reportedly could be reaping a bumper soyabean crop this autumn, which is why the year-to-date gain for soyabean oil is only 1.80 per cent compared to palm oil’s 25.19 per cent price rise thus far this year.

Conclusion: Judging from the short- to medium-term global edible oils demand-supply scenario and the technical indicators, the force is still with the bears.

But because this market punctured the erstwhile RM2,130 short-term overhead resistance level on the upside last week, this market is now technically in a short-term RM1,990-RM2,160 trading range consolidation 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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