OBSERVATIONS: The Kuala Lumpur CPO futures market, basis the benchmark December 2009 contract, settled last week at RM2,036 a tonne, down RM150 or 6.86 per cent, and is within striking distance of the RM1,990 a tonne long-term support level. That support level will probably be tested – and demolished – by the end of this week, or at least by next week, if the technicals are any guide.
This market started last week looking like it would extend the previous fortnight’s technical bounce. But poor export estimates threw a spanner into the works, turning a promising start into a selling rout and a technical bounce into a dead-cat bounce.
The export estimates were of primary concern to the industry and market players because of the impact they could have on stock levels, which had risen to a six-month high as at end-August 2009 The September 1-25 export estimates were bad enough but it was the full-month export estimate from export monitor Intertek Agri Services (IAS) that was the real shocker.
IAS put September exports of palm oil at a five-month low of 1,227,963 tonnes, down a whopping 104,289 tonnes or 7.63 per cent below that for August.
That prompted market players to turn orderly liquidation of long (buy) contracts into a near selling rout. Many skittish players played safe, rushing for the exits ahead of the weekend.
Another negative factor was Godrej International Ltd director Dorab Mistry’s prognosis, which he let on at a Mumbai conference, that palm oil needs to drop to RM1,900 a tonne in order to stoke buying interest. Mistry had in earlier months predicted that palm oil would rise to RM3,000 a tonne by mid-August which, of course, didn’t happen.
Conclusion: Market players, especially those still holding on to long contracts as of last week, need to brace themselves for an imminent test of – and probable breakdown below – the RM1,990 long term support level.
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