Palm Futures Market to Look at Trade Data for Leads

OBSERVATIONS: The Kuala Lumpur CPO futures market breached the erstwhile RM2,240 a tonne overhead resistance level, the only event of any significance last week. The actively-traded January 2010 contract rose to an intra-week high of RM2,275 on speculative buying before closing last Friday at RM2,245, up RM38 or 1.72 per cent, over the week.

Poking above the erstwhile resistance level could be seen by bullishly-minded market players as a buy signal – a precursor of higher prices ahead. But caution should be the watchword, for several reasons.

For one, the push above RM2,240 was indecisive, reflecting ambivalence on the part of a major portion of market players.

For another, the technical indicators – particularly that emitted from the volume complex – point to a coming price relapse, which might happen sooner rather than later. That’s because the volume indicators are flashing signs of “distribution” or signicant selling on the quiet over the past fortnight, probably by the smart money.

What this market essentially did last week was to dart up and down roughly in tandem with the bellwether US soyabean oil futures market, suggesting either it did not have a mind of its own or that market players overall didn’t have a clue as to market direction.

Conclusion: The Malaysian Palm Oil Board report on October trade data and end-October 2009 stocks, to be unveiled tomorrow, is likely to be a determinant of immediate market direction, depending on what market players make of them.

However, if the technicals – particularly the volume indicators – are any guide market players still holding on to long (buy) contracts should brace themselves for a price relapse – maybe even a collapse.

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.

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.

The writer welcomes comments and feedback. He can be reached at mavernwqmun@gmail.com

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