OBSERVATIONS: The Kuala Lumpur CPO futures market, following US
soyabean oil futures lead, fell through the former RM2,380 technical
support level last week, if only slightly. But the signs point to more
downside room ahead for this market even as it looks like it’s trying
hard to form a base.
The actively-traded September 2010
contract fell to an intra-week low of RM2,371 before settling at RM2,384
last Friday, down RM16 or 0.67 per cent over the week. Palm oil’s price
fall was in rough tandem with US soyabean oil futures for July
delivery, which fell 76 points, or 2 per cent, to close at 37.16 US
cents a pound.
World edible oil markets overall continued to
labour under the weight of expectations for a looming bumper South
Amercian soyabean harvest.
Forecasts for a super South
American soyabean harvest is not really new news, but it was what the
latest authoritative Hamburg-based Oilworld publication said that may
have turned the screws even tighter on world futures markets for
vegetable oils
Oilworld, an industry publication, raised its forecast for global
output of 10 oilseeds for 2010-2011 to a record 438.8 million tonnes,
from 438.7 million last year. It raised its Argentina soyabean estimate
by 0.7 million tonnes to 55 million tonnes compared to a
drought-affected harvest of 31.5 million tonnes. Its South American crop
forecast is 136 million tonnes, from 97 million tonnes last year, with
harvests ending last month, it said.
“Supplies of soyabeans
have become ample”, and soyabean stocks will be “substantial” until
August, which will have a bearish impact on edible oils prices, it said
in its June 11 weekly report.
CONCLUSION: The substantial
amassing of short positions between April 30 and June 18, during which
the total open interest position burgeoned from 78,027 open contracts to
63,191 open contracts, has yet to unwind. This suggests that this
market could see more downside ahead as bearish sentiment continues to
prevail, especially with the bearish prospect of a bumper South American
soyabean harvest.
HOW TO USE THE CHARTS AND INDICATORS
n 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.
n 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.
