Palm Futures Downturn Yet to Touch Botton Level

THE Kuala Lumpur CPO futures market had a big fall last week.

The benchmark November 2009 contract plunged to a five-week low of RM2,197, and there was where it settled last Friday, down a whopping RM169 or 7.14 per cent over the week.

The catalyst was China, or rather the slew of bad news coming from the nation, which unnerved world equity and commodity markets overall.

The principal bit of bad news was the plunge on the Shanghai stock market, seen as a leading indicator of the Chinese economy. China’s benchmark stock market has fallen by 22 per cent in August and indications thus far this month are for more downside ahead.

Statistics show that China’s import of commodities – particularly iron ore and other base metals, have dropped sharply in past months. This in turn has rattled world equities and commodity markets concerned over prospects for global economic recovery.

Crude oil dipped below the US$70 mark (RM247), down to US$68 (RM240) a barrel.

But what spooked world grains and edible oil markets in particular was a report that China’s state-owned companies may default on commodity derivative contracts with six foreign banks providing over-the-counter hedging services. The report appeared in Caijing magazine quoting an unnamed industry source in an article published Saturday.

China is the No.1 buyer of US and South American soyabeans. The upshot was that US soyabean and soyabean oil futures markets went into a deep swoon, and the Kuala Lumpur CPO market felt the knock-on effect.

Conclusion: The technicals indicate that the bottom to the present downturn in price has not been reached yet.

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

Leave a Reply