OBSERVATIONS: Happy days are here again – for Kuala Lumpur CPO futures market bulls.
Energised by news of a marked improvement in the commodity’s fundamentals the actively-traded April 2010 contract surged to a high of RM2,594 last week. In just a fortnight the April 2010 contract, which settled last Friday at RM2,580 a tonne, has leapt some RM240 or 7.5 per cent up the price chart.
In the past three weeks market talk had been that robust export demand would make a significant dent in the mountain of palm oil stocks, which at end-2009 stood at 2,239,237 tonnes.
The much anticipated Malaysian Palm Oil Board (MPOB) report on January 2010 trade data, unveiled last week, did not disappoint.
MPOB put January exports at 1,461,731 tonnes, up 237,000 tonnes or 19 per cent from the previous month; production at 1321843 tonnes, down 199,000 tonnes or 13 per cent.
The upshot: End-January 2010 stocks shrunk some 239,000 tonnes or 10.7 per cent to 2,000,656 tonnes.
What’s more, the latest export estimates suggest export demand continues to be robust. Export monitors Societe Generale de Surveillance (SGS) and Intertek Agri Services (IAS) put February 1 – 10 exports at a total combined average of 390,593 tonnes, up some 41,000 tonnes or 11.92 per cent compared to that for that shipped out in last month’s corresponding period.
This market, however, will undergo an enforced pause for breath – the market was closed yesterday and today for the Chinese New Year public holidays – before deciding on its next course of action – and direction – when trading resumes tomorrow.
Conclusion: Because the recent blistering run-up in price has lifted this market high up into technical overbought territory a technical pullback would be in order and would be expected to prolong the present pause for breath.
Whether it decides to jump back on the uptrack, after the past two days’ enforced pause for breath, depends not only on the performance on foreign edible oil markets but also – and most crucially – on the February 1 – 15 export estimates, which should be public knowledge
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.
