CPO Futures Market Set to Play ‘Catch-Up’

OBSERVATIONS: The Kuala Lumpur CPO futures market has in the

recent past acquired the habit of playing follow-the-leader. Major world

stock and commodity markets were the leaders, sometimes playinjg their

roles in rotation.

It was no different last week. The local

market went on a roller-coaster ride, falling at first in tandem with

the meltdown in major stock markets, crude oil and gold, then rising in

the latter part of last week by hanging on to the coat-tails of those

markets.

And it is likely to play follow-the-leader again this

week, though the leader this time round might well be the grain complex –

in particular the soyabean and soyabean oil markets.

This

market’s fall to an 8-month low of RM2,270 a tonne in early trade

followed Wall Street’s plunge below the psychological 10,000-point level

and crude oil’s plunge to US$71 a barrel. And its bounce back up above

the psychological RM2,300 level in late trade was also in tandem with

the bounces in those major markets. The actively-traded September 2010

contract settled last Friday at RM2.300 a tonne, still down RM35 or 1.50

per cent over the week despite the late uptick.

The Malaysian Palm Oil Board (MPOB) report on June trade data and

end-June 2010 stocks should be public knowledge today, though the volume

indicators suggest market players in general – and the smart money in

particular – do not think the report is going to make much of an impact

in terms of price movement.

What could sway the US soyabean

oil futures market – and the local market too – is an industry report

that the US soyabean September though November US soyabean harvest is

likely to be be 2 per cent lower than earlier expectations, due to

weather problems.

That report had a noticeable effect on US

soyabeans and soyabean oil futures markets in late trade last week.

Soyabean oil for August delivery has not only clawed back all its

earlier losses but also ended last week at 37.50 US cents a pound, up

134 points or 3.71 per cent over the week.

Other major markets –

Wall Street gained 0.23 per cent, closing at 10,198.03 points; crude

oil for August delivery at US$76.09 a barrel, up 5.48 per cent – also

were up over the week..

But the local market has yet to play

catch-up, or follow the leader(s).

Conclusion: This

market is likely to trade with a steady, if not stronger, tone, in early

trade this week as it attempts to play catch-up with other major world

markets.

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 by W.Q.Mun

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