CPO Futures Market Back on Bullish Track

OBSERVATIONS: The Kuala Lumpur CPO futures market did what the

technicals had the previous week indicated it would do: break through on

the upside the erstwhile RM2,570 a tonne overhead resistance level. In

so doing, it also has signalled that this market is now back on the bull

track – at least in the immediate and foreseeable short term.

The

actively-traded June 2010 contract went on a rollercoaster ride last

week, rising at first to RM2,570, then plummeting to a low of RM2,500

before staging a sharp recovery to settle last Friday at RM2,590, up

RM35 or 1.37 per cent over the week.

The breakout signalling the

advent of a new short-term bull phase, however, came very late – in the

last hour of trading last Friday. It also is a sign that market players

expect the Malaysian Palm Oil Board (MPOB) report on March trade data

and end-March 2010 stocks (which should be public knowledge by time this

market opens for trading today) to be bullish in terms of the crop’s

fundamentals.

Last week was particularly interesting and

instructive from a trading and technical point of view. A lot of

players were frazzled and whipsawed. And they lost a lot of money,

especially when this market set off the bear trap in late trade last

Friday, sending many scurrying for cover by disposing of their short

(sell) positions.

Conclusion: Market players who had not covered their money-losing

short positions last week will probably want to do so today, and maybe

also tomorrow. The expected frenzy of short-covering activity will send

prices higher up the price chart in early trade this week.



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.

Source : Business Times

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