CPO Futures – RM2,500 is Next Logical Target

OBSERVATIONS: The Kuala Lumpur CPO futures market plummeted for

the third consecutive week in a row last week.

The benchmark June

2010 contract closed last Friday at a 7-week low of RM2,534, down RM43

or 1.67 per cent over the week.

The price slide in the past three

weeks, from the recent peak of RM2,722 looks like quite a big fall.

Some players think it’s time for a correction, a technical rebound.

However, with no signs that this market is anywhere near its nadir in

the present bear phase the road ahead still leads south, though it might

be a winding one.

Several factors are weighing this market down.

The

recent strength in the US dollar, for one, was a depressant for all

world commodities which uses the greenback as a medium of exchange for

trade.

Weakness of crude oil, due to big supply buildup pressures

and the black goo’s inability to scale pass and stay above the US$80

(US$1 = RM3.31) a barrel level was another.

But what really pushed

this markets against the ropes last week was the latest and one should

add, disappointing export estimates.

Export monitors Societe

Generale de Surveillance (SGS) and Intertek Agri Services’ (IAS) March

1-25 export estimates for the commodity amounted to an average of 1.12

million tonnes, or some 24,000 tonnes above that exported in the

corresponding period in February.

That’s a huge comedown,

compared to the earlier March 1-15 average export estimate of about

654,000 tonnes which was 67,500 tonnes or 11.75 per cent above that for

first half February.

The industry expects a pickup in production

in March, which does not bode well for hopes for much of a decline in

end-March 2010 stocks, if any.

Conclusion: The RM2,500 a

tonne psychological level is the next logical target.

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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