OBSERVATIONS: The RM2,700 to RM2,725 a tonne area has become a
zone of fear – fear that long (buy) positions entered into within that
zone would be money-losing propositions.
That’s because
that’s the area where, last week, not only many dreams of riches have
turned to dust, many market players suffered heavy losses to boot!
The
problem was because, try as as it did, this market just could not
breach the long-term RM2,725 overhead resistance level.
And
it was not for want for trying. This market made passes, for four
consecutive days (Monday through Thursday), above the RM2,700 level.
But although it kept plugging away it got stonewalled in every attempt
it made to breach the RM2,725 resistance level.
Market
bulls, exhausted and frustrated by the end of last week, changed tack
last Friday, attempted to nail down profits by liquidating long
contracts and pocketing whatever profits were still available for the
taking. In the event the May 2010 contract slumped, settling at RM2,649
for a RM21 or 0.79 per cent loss over the week.
What
happened is that the RM2,725 overhead resistance level has become even
more resistant – maybe even super resistant – to future attempts at
rallies to stage breakouts above that level.
The
unfortunate part – for the bulls – was that the many failtures to breach
that overhead resistance were not for want of encouraging news and
positive develoments.
The latest March -10 combined export
estimates from Societe Generale de Surveillance and Intertek Agri
Services averaged 450,000 tonnes, up 59,000 tonnes or 15.61 per cent
compared to that for the corresponding period in February.
And
the Malaysian Palm Oil Board put end-February 2010 stocks at 1,785,333
tonnes, which not only was lower by some 218,000 tonnes or 10.90 per
cent from that at the end of January 2010 but also the lowest stocks
have been since September 2009, when stocks were figured at 1,579,252
tonnes.
Conclusion: This market will, in all probability, fall
in early trade this week to test the RM2,630 immediate support level.
A
decisive breakdown below that support level will mark not only the end
to the February through early March RM2,400-RM2,720 short-term bull run,
it also will signal the start to a new short-term bear phase.
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.
