OBSERVATIONS: The Kuala Lumpur CPO futures market eked out a gain
last week, thanks to short-covering at the eleventh hour of trade
Crude
palm oil for August 2010 delivery fell in early trade to a low of
RM2,425 a tonne, but short-covering emerged soon enough after that to
lift it to a high of RM2,482. It settled last Friday at RM2,474 a tonne,
up a nominal RM17 or 0.69 per cent over the week.
Short-covering
was evidenced by the notable contraction the total open interest
position to 69,501 open contracts from the previous week’s 70,974 open
contracts, a disappearance of 1,473 open contracts or 2.08 per cent
over the week.
The initial bout of short-covering activity was
sparked by last month’s scintillating export performance.
Export monitors Societe Generale de Surveillance (SGS) and Intertek Agri
Services (IAS) put May exports at 1.323 million tonnes and 1.332
million tonnes respectively. Compared to their estimates for exports in
April, that’s up an average of some 133,000 tons or 10.81 per cent.
Short-covering
towards the end of last week was likely due to the urge to cut down
on risk exposure ahead of the weekend and caution ahead of this week’s
Malaysian Palm Oil Board (MPOB) report on May trade data and the
end-May palm oil stock position, due out on Thursday.
Talk in
some private circles is for a bearish MPOB report, but that was not
translated into downward price movements last week.
Conclusion:
This market is still technically a bear.
Any technical rally
from here, due to short-covering or otherwise, will still need to break
out on the upside the RM2,520 immediate overhead resistance level before
this market can be said to be back on the short-term bull track.
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.
Source : Business Times by W.Q.Mun
