OBSERVATIONS: Rising floodwaters in most parts of the country lifted the Kuala Lumpur CPO futures market to a 14-week high last week. And if the weatherman’s forecast is any guide this market can expect to hit new highs in the near-term future. The actively-traded February 2010 contract settled at the intra-week high of RM2,419 a tonne, up RM151 or 6.66 per cent over the week. Closing at the absolute high point of the week’s RM2,419-RM2,305 trading range is a bullish candlestick pattern pointing to more upside movement ahead. The north-east monsoon which lashed most parts of the country was the principal catalyst behind this market’s well over RM250 leap in price over the past fornight. TV newscasts of the many landslips caused by rainstorms and floods in rural areas contributed to bullish sentiment. For sure the floods not only haved hampered the harvesting of palm oil fruit, they also must have disrupted the logistics of transporting the fresh fruit bunches to the refineries and palm olein to the ports for export. What’s more, the weather forecast is for more rainstorms – and therefore more floods – in the near-term future.
And fortuitously, at least for market bulls, export market monitors Societe Generale de Surveillance (SGS) and Intertek Agri Services (IAS) chimed in with scintillating export estimates. SGS and IAS’ combined export estimate of an average of some 696,000 tonnes for first half November 2009 was not only the highest for any month-to-date estimate this year, it also was about 126,000 tonnes or 17.0 per cent higher than that for the corresponding period in October 2009. That bodes well for a reduction in end-November 2009 stocks of palm oil.
Conclusion: This market can be expected to make more headway on the upside in early trade this week, before coming up against the immediate RM2,470 a tonne overhead resistance level.
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.
