OBSERVATIONS: Short-covering saved the Kuala Lumpur CPO futures
market from falling through the RM2,470 a tonne short-term support
level, the lower rung of this market’s RM2,470-RM2,595 trading range.
Aggressive
short-covering was discernable from the notable decline in the total
open position to 63,191 open contracts from the previous week’s 67,455
open contracts, a contraction of 4,264 open contracts or 6.32 per cent
on blips and price rallies last week.
Short-covering was what
caused the benchmark July 2010 contract to bump up from the intra-week
low of RM2,520 to last Friday’s settlement price of RM2558,
representing a RM18 or 0.71 per cent gain over the week.
News
reports, citing industry and market observer opinions, attributed the
firmer market tone to buying interest in the wake of the allegedly
better-than-expected export performance for April 2010.
Export monitors Societe Generale de Surveillance and Intertek Agri
Services’ combined average estimate for palm oil exports in April was
1.203 million tonnes, which not only was lower than that for March 2010
by some 146,000 tonnes or 10.9 per cent but also was a 4-month low. But
because it exceeded market expectation of 1.18 million tonnes it
prompted a bit of fresh buying interest and a lot more short-covering by
players who opted for the safety of the sidelines ahead of the
weekend..
Conclusion: Despite appearances this market is
still technically a bear.
What last week’s trading action has
done is to confirm the upper parameter of this market’s trading range –
or the overhead resistance level – at RM2,595.
This market
could test either the upper or lower parameters of the RM2,470-RM2,595
trading band on speculation over the contents of the Malaysian Palm Oil
Board’s report on April trade data and end-April 2010 stock position,
due out next 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 by W.Q.Mun
