OBSERVATIONS: The Kuala Lumpur Crude Palm Oil (CPO) futures
market saw bullish action last week. The bull run was triggered off by
the setting off of a bear trap, and ramped up by fierce and frantic
The October 2010 contract rose to an eight-month
high, closing last Friday at RM2,661 a tonne, up RM144 or 5.72 per cent
over the week.
The technicals had indicated the previous week
that this market was prime for a technical rebound – and raring for
All it needed was a spark, and the market’s fuse was lit for the lift-off.
Some market observers saw the latest export estimates as the “spark” that sent prices rampaging up the price chart.
monitors Societe Generale de Surveillance (SGS) and Intertek Agri
Services’ (IAS) July 1 to July 25 export estimates averaged 1.406
million tonnes, up 60,000 tonnes or 4.47 per cent compared to that of
the similar period in June.
Buying and short-covering
snowballed on market-inciting talk that Bangladesh would be buying in a
big way to stock up on cooking oil ahead of the Hari Raya Puasa festive
season, slated to start on September 10.
But others saw the bull
run in wheat prices, set off by drought and wildfires in Russia which
has destroyed a fifth of its crop, as the real “spark”.
Conclusion: This market had overshot and over-extended itself into extremely high overbought territory.
imminent technical correction – which could turn out to be a minor
pullback on its way further up the price chart – would be in order.
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
# 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
(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.