CPO Futures – Volatile, Narrow-Range Trading Likely

OBSERVATIONS: The bears had a field day last week, exploiting and profiting from erstwhile bulls running scared due to unexpectedly – and exceptionally – poor export estimates.

Massive fresh and renewed selling interest was evidenced by the notable 8.49 per cent or 7,001-contract bulge in the total open interest position to last Thursday’s 89,473 open contracts. However, the total open interest position contracted last Friday to 85,985 open contracts due to short-covering ahead of the weekend.

The actively-traded November 2009 contract plunged to an intra-week low of RM2,234 a tonne before recovering some on short-covering to settle last Friday at RM2,345 a tonne, down RM96 or 3.93 per cent over the week.

It was the latest – and poor – export estimates that set the ball rolling down the price chart. Export monitors Societe Generale de Surveillance (SGS) and Intertek Technical Services (ITS) put August 1-20 exports at 814,403 tonnes and 815,208 tonnes respectively, down a whopping combined average of some 79,000 tonnes or 8.84 per cent compared to that shipped out in the similar period in July.

The oft-cited RM3,000 a tonne target, which so-called “experts” earlier said would be hit by mid-August 2009, could have spooked some bears into covering their short positions in a big way last Friday. Now, the goalpost for hitting that RM3,000 target has been shifted to “before the end of this year”.

Conclusion: This market is likely to experience volatile trade within RM2,240-RM2,465 price range in the near to short term.

The SGS and ITS’ August 1-25 export estimates, due out tomorrow, will likely have an effect on market tone and direction. 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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