OBSERVATIONS: The bear has dislodged the bull from the driver’s
seat and is now firmly in control at the steering wheel in the Kuala
Lumpur CPO futures market.
This trade in places happened
last week when the benchmark third month contract – now the June 2010
contract – smashed and crashed through on the downside the erstwhile
RM2,630 a tonne short-term support level. The June 2010 contract
plummeted to a low of RM2,526 before liquidation profit-taking and
short-covering ahead of the weekend gave prices a last-minute lift. The
contract settled last Friday at RM2,577, down RM72 or 2.72 per cent
over the week.
Last week’s total turnover of 53,678 contracts for
the benchmarket contract was notably higher than the previous week’s
39,041 contracts, reflecting the bulge in selling activity.
The
sudden – and largely unexpected – sea change in investor sentiment has
puzzled many small retail market players. Palm oil’s fundamentals
(hitherto considered bullish) do not appear to have changed much.
Industry figures see the present heat wave crimping yields of palm
fresh fruit bunches even as, based on the latest export estimates, the
trend of exports is still up.
Export monitors Societe Generale de
Surveillance and Intertek Agri Services’ latest estimates put March
1-15 exports at a combined average of 654,000 tonnes, up 59,000 tonnes
or 11.75 per cent from thatin first-half February.
External
factors, however, are providing a discouraging ackdrop for the local
market. Strength in the US dollar and weakness in US soya-bean oil
futures, which also, technically, has gone into bear mode due to
expectations for a South American bumper harvest for soybeans, are
weighing on world edible oil markets overall.
Conclusion:
Market players will this week look to the March 1-20 export estimates
for leads.
But if the technicals are any guide this market, in
the present bear phase, well fall to as low as RM2,400, the next major
technical support level.
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.
