OBSERVATIONS: Beware the springing of a bear trap.
Such an
event may not necessarily happen. It may not even happen, But the
potential for such an event happening is there and it behooves market
players to beware of it – and take quick action either to make quick
gains or cut losses short if and when it should happen.
One
reason for the potentiality of such an event happening is the
substantial increase in the total open interest position last week – to
65,625 open contracts from the previous week’s 63,191 open contracts, a
notable 3.85 per cent bulge or 2,434 open contracts in the course of a
single week, while the benchmark July 2010 contract plunged to an
intra-week low of RM2, 484 a tonne.
Another reason is the
surprising resilience of this market in the face of an extraordinarily
thick raft of bearish news and developments (Greece’s debt woes and the
fear of contagion to other debt-ridden European Union countries, the
euro’s fall to a 14-month low and crude oil’s fall to a 11-week low
around US$77 a barrel, among others), not to mention intense jawboning
by market players and commentators about deterioration in the comodity’s
fundamentals in their attempts to talk down this market.
Despite the odds stacked against it this market, the active July 2010
contract managed tp claw back up above the psychological RM2,500 level,
settling last Friday at RM2519 for a loss of RM39 or 1.52 per cent over
the week. And despite the odds stacked against it, this market remained
ensconced within its short term RM2,470 to RM2,595 trading range, which
could be viewed as a sign of underlying technical strength.
Conclusion:
The springing of a bear trap, if it happens, would see this market
staging a strong technical rebound.
No one can tell what event –
or catalyst – will trigger off the bear trap, if it happens.
However,
if any event can trigger off the bear it trap, it probably will be the
Malaysian Palm Oil Board report on April trade data and end-April 2010
stocks, due out today.
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
