CPO Futures Technically Still a Bear Market

OBSERVATIONS: Short-covering saved the Kuala Lumpur CPO futures

market from falling through the RM2,470 a tonne short-term support

level, the lower rung of this market’s RM2,470-RM2,595 trading range.

Aggressive

short-covering was discernable from the notable decline in the total

open position to 63,191 open contracts from the previous week’s 67,455

open contracts, a contraction of 4,264 open contracts or 6.32 per cent

on blips and price rallies last week.

Short-covering was what

caused the benchmark July 2010 contract to bump up from the intra-week

low of RM2,520 to last Friday’s settlement price of RM2558,

representing a RM18 or 0.71 per cent gain over the week.

News

reports, citing industry and market observer opinions, attributed the

firmer market tone to buying interest in the wake of the allegedly

better-than-expected export performance for April 2010.

Export monitors Societe Generale de Surveillance and Intertek Agri

Services’ combined average estimate for palm oil exports in April was

1.203 million tonnes, which not only was lower than that for March 2010

by some 146,000 tonnes or 10.9 per cent but also was a 4-month low. But

because it exceeded market expectation of 1.18 million tonnes it

prompted a bit of fresh buying interest and a lot more short-covering by

players who opted for the safety of the sidelines ahead of the

weekend..

Conclusion: Despite appearances this market is

still technically a bear.

What last week’s trading action has

done is to confirm the upper parameter of this market’s trading range –

or the overhead resistance level – at RM2,595.

This market

could test either the upper or lower parameters of the RM2,470-RM2,595

trading band on speculation over the contents of the Malaysian Palm Oil

Board’s report on April trade data and end-April 2010 stock position,

due out next 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 by W.Q.Mun

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