OBSERVATIONS: The Kuala Lumpur CPO futures market has morphed
into a bear.
But this bear is not going to make it easy for
market players - not even the bearishly-inclined - to make money.
Indeed, it looks likely that it will be a volatile bear, and therefore
likely higher unpredictable on a near term basis. And there will be
times when, like last week, it could fool some players into thinking
it's more bull than bear.
The technical indicators had in the
previous week had pointed to this event - the morphing into a bear -
coming to pass and, in that respect, it was not a disappointment. The
decisive breakdown below the erstwhile RM2,520 a tonne support level in
early trade, and the subsequent plunge to a low of RM2,455, were the
technical signs that the bear had bared its claws.
Some market
commenters pointed to the Goldman Sachs fraud charge as a factor behind
the tremors in world stock snd commodity markets early last week. It
could well have been a contributing factor, though a minor one, to this
market's plunge in early trade.
But what was unexpected was this market's late surge, which not only saw
the actively-traded July 2010 contract recovering all it earlier losses
but also close the week at RM2,540 a tonne, up RM28 over the week.
True,
a technical rebound from the earlier sharp price falls was to be
expected; but not to the extent of topping the previous week's closing
price. Market pundits attributed the spectacular rebound to speculation
that palm oil production has been, and will be, badly hit by the blazing
dry weather conditions over the past two months. But that certainly was
not evident from the latest Malaysian Palm Oil Board report, which put
March 2010 March output at 1,387,234 tonnes, up some 230,000 tonnes or
19.92 per cent from that for February.
Conclusion: This
market is technically a bear.
Based on that prognosis last
week's late rally is either a technical rebound or a sucker rally - or
both. Besides, with the fall in the US soyabean oil futures market last
week, and the exchange rate at RM3.19 to a US dollar, the palm
oil-soybean oil discount has narrowed even further to 8 per cent, thus
putting more pressure on palm oil prices to fall - or soyabean oil
prices to rise.
This market, however, looks set for bouts of very
volatile trade, with wide and wild price swings the order of the day.
Which could make it highly unpredictable on a near term basis. For those
who can't the heat, the best advice is: stay out of the kitchen.
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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