OBSERVATIONS: The Kuala Lumpur CPO futures market has in the
recent past acquired the habit of playing follow-the-leader. Major world
stock and commodity markets were the leaders, sometimes playinjg their
roles in rotation.
It was no different last week. The local
market went on a roller-coaster ride, falling at first in tandem with
the meltdown in major stock markets, crude oil and gold, then rising in
the latter part of last week by hanging on to the coat-tails of those
markets.
And it is likely to play follow-the-leader again this
week, though the leader this time round might well be the grain complex –
in particular the soyabean and soyabean oil markets.
This
market’s fall to an 8-month low of RM2,270 a tonne in early trade
followed Wall Street’s plunge below the psychological 10,000-point level
and crude oil’s plunge to US$71 a barrel. And its bounce back up above
the psychological RM2,300 level in late trade was also in tandem with
the bounces in those major markets. The actively-traded September 2010
contract settled last Friday at RM2.300 a tonne, still down RM35 or 1.50
per cent over the week despite the late uptick.
The Malaysian Palm Oil Board (MPOB) report on June trade data and
end-June 2010 stocks should be public knowledge today, though the volume
indicators suggest market players in general – and the smart money in
particular – do not think the report is going to make much of an impact
in terms of price movement.
What could sway the US soyabean
oil futures market – and the local market too – is an industry report
that the US soyabean September though November US soyabean harvest is
likely to be be 2 per cent lower than earlier expectations, due to
weather problems.
That report had a noticeable effect on US
soyabeans and soyabean oil futures markets in late trade last week.
Soyabean oil for August delivery has not only clawed back all its
earlier losses but also ended last week at 37.50 US cents a pound, up
134 points or 3.71 per cent over the week.
Other major markets –
Wall Street gained 0.23 per cent, closing at 10,198.03 points; crude
oil for August delivery at US$76.09 a barrel, up 5.48 per cent – also
were up over the week..
But the local market has yet to play
catch-up, or follow the leader(s).
Conclusion: This
market is likely to trade with a steady, if not stronger, tone, in early
trade this week as it attempts to play catch-up with other major world
markets.
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 by W.Q.Mun
