CPO Futures – Test for RM2,630 Support Level

OBSERVATIONS: The RM2,700 to RM2,725 a tonne area has become a

zone of fear – fear that long (buy) positions entered into within that

zone would be money-losing propositions.

That’s because

that’s the area where, last week, not only many dreams of riches have

turned to dust, many market players suffered heavy losses to boot!

The

problem was because, try as as it did, this market just could not

breach the long-term RM2,725 overhead resistance level.

And

it was not for want for trying. This market made passes, for four

consecutive days (Monday through Thursday), above the RM2,700 level.

But although it kept plugging away it got stonewalled in every attempt

it made to breach the RM2,725 resistance level.

Market

bulls, exhausted and frustrated by the end of last week, changed tack

last Friday, attempted to nail down profits by liquidating long

contracts and pocketing whatever profits were still available for the

taking. In the event the May 2010 contract slumped, settling at RM2,649

for a RM21 or 0.79 per cent loss over the week.

What

happened is that the RM2,725 overhead resistance level has become even

more resistant – maybe even super resistant – to future attempts at

rallies to stage breakouts above that level.

The

unfortunate part – for the bulls – was that the many failtures to breach

that overhead resistance were not for want of encouraging news and

positive develoments.

The latest March -10 combined export

estimates from Societe Generale de Surveillance and Intertek Agri

Services averaged 450,000 tonnes, up 59,000 tonnes or 15.61 per cent

compared to that for the corresponding period in February.

And

the Malaysian Palm Oil Board put end-February 2010 stocks at 1,785,333

tonnes, which not only was lower by some 218,000 tonnes or 10.90 per

cent from that at the end of January 2010 but also the lowest stocks

have been since September 2009, when stocks were figured at 1,579,252

tonnes.

Conclusion: This market will, in all probability, fall

in early trade this week to test the RM2,630 immediate support level.

A

decisive breakdown below that support level will mark not only the end

to the February through early March RM2,400-RM2,720 short-term bull run,

it also will signal the start to a new short-term bear phase.

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.

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