OBSERVATIONS: The Kuala Lumpur CPO futures market did what the
technicals had the previous week indicated it would do: break through on
the upside the erstwhile RM2,570 a tonne overhead resistance level. In
so doing, it also has signalled that this market is now back on the bull
track – at least in the immediate and foreseeable short term.
The
actively-traded June 2010 contract went on a rollercoaster ride last
week, rising at first to RM2,570, then plummeting to a low of RM2,500
before staging a sharp recovery to settle last Friday at RM2,590, up
RM35 or 1.37 per cent over the week.
The breakout signalling the
advent of a new short-term bull phase, however, came very late – in the
last hour of trading last Friday. It also is a sign that market players
expect the Malaysian Palm Oil Board (MPOB) report on March trade data
and end-March 2010 stocks (which should be public knowledge by time this
market opens for trading today) to be bullish in terms of the crop’s
fundamentals.
Last week was particularly interesting and
instructive from a trading and technical point of view. A lot of
players were frazzled and whipsawed. And they lost a lot of money,
especially when this market set off the bear trap in late trade last
Friday, sending many scurrying for cover by disposing of their short
(sell) positions.
Conclusion: Market players who had not covered their money-losing
short positions last week will probably want to do so today, and maybe
also tomorrow. The expected frenzy of short-covering activity will send
prices higher up the price chart in early trade this week.
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
