W.Q. Mun

OBSERVATIONS: The Kuala Lumpur CPO futures market has morphed into a bear.

This it did by decisively penetrating on the downside the RM2,335 a tonne long-term technical support level. The benchmark September 2009 contract plunged last week to a low of RM2,274 before settling last Friday at RM2,285, down a whopping RM180 or 7.30 per cent over the week.

Obviously many market players were running scared, frightened by the recent thick slew of news on bearish developments regarding the fundamentals of the crop.

While the 74,000-tonne increase in end-May 2009 stocks of palm oil to 1.37 million tonnes, as reported by the Malaysian Palm Oil Board (MPOB) was the catalyst for the previous week’s price slide, bad news on the export front compounded market players’ fears – and probably led to a firming of their conviction – that the end to the January through mid-May 2009 bull run is nigh. More so now that the industry is in the middle of the April-through-September seasonal high production period.

The latest June 1-15 export estimates compounded this market’s bearish tone. Societe Generale de Surveillance and Intertek Agri Services’ first half June export estimates were 570,187 tonnes and 560,416 tonnes respectively. The total combined estimates of the two export monitors averaged some 565,000 tonnes, down about 61,000 tonnes or 9.80 per cent compared to the average of their estimates for the corresponding period in May.

What’s more, market grapevine talk that India has deferred taking delivery of some 70,000 tonnes of palm oil for has fuelled speculation of defaults in export orders.

Weakness in world commodity markets overall, and in crude oil markets in particular, provided a bearish backdrop, adding to the gloom.

Conclusion: The June 1-20 export estimates, which should be public knowledge today, is likely to be the determinant of immediate market direction.

Because of the sharp price tumbles over the past two week, this market is now in an extremely technical oversold position and a technical rebound could be in the offing. However, don’t be surprised if it turns out to be a dead-cat bounce.
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.

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