CPO Futures Slightly Higher But Still a Bear

OBSERVATIONS: The Kuala Lumpur CPO futures market eked out a gain

last week, thanks to short-covering at the eleventh hour of trade

Crude

palm oil for August 2010 delivery fell in early trade to a low of

RM2,425 a tonne, but short-covering emerged soon enough after that to

lift it to a high of RM2,482. It settled last Friday at RM2,474 a tonne,

up a nominal RM17 or 0.69 per cent over the week.

Short-covering

was evidenced by the notable contraction the total open interest

position to 69,501 open contracts from the previous week’s 70,974 open

contracts, a disappearance of 1,473 open contracts or 2.08 per cent

over the week.

The initial bout of short-covering activity was

sparked by last month’s scintillating export performance.

Export monitors Societe Generale de Surveillance (SGS) and Intertek Agri

Services (IAS) put May exports at 1.323 million tonnes and 1.332

million tonnes respectively. Compared to their estimates for exports in

April, that’s up an average of some 133,000 tons or 10.81 per cent.

Short-covering

towards the end of last week was likely due to the urge to cut down

on risk exposure ahead of the weekend and caution ahead of this week’s

Malaysian Palm Oil Board (MPOB) report on May trade data and the

end-May palm oil stock position, due out on Thursday.

Talk in

some private circles is for a bearish MPOB report, but that was not

translated into downward price movements last week.

Conclusion:

This market is still technically a bear.

Any technical rally

from here, due to short-covering or otherwise, will still need to break

out on the upside the RM2,520 immediate overhead resistance level before

this market can be said to be back on the short-term bull track.



HOW

TO USE THE CHARTS AND INDICATORS

n 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.

n 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.

n 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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