Monday, March 22, 2010

CPO futures --Bear takes over driver's seat

OBSERVATIONS: The bear has dislodged the bull from the driver's seat and is now firmly in control at the steering wheel in the Kuala Lumpur CPO futures market.

This trade in places happened last week when the benchmark third month contract - now the June 2010 contract - smashed and crashed through on the downside the erstwhile RM2,630 a tonne short-term support level. The June 2010 contract plummeted to a low of RM2,526 before liquidation profit-taking and short-covering ahead of the weekend gave prices a last-minute lift. The contract settled last Friday at RM2,577, down RM72 or 2.72 per cent over the week.

Last week's total turnover of 53,678 contracts for the benchmarket contract was notably higher than the previous week's 39,041 contracts, reflecting the bulge in selling activity.

The sudden - and largely unexpected - sea change in investor sentiment has puzzled many small retail market players. Palm oil's fundamentals (hitherto considered bullish) do not appear to have changed much. Industry figures see the present heat wave crimping yields of palm fresh fruit bunches even as, based on the latest export estimates, the trend of exports is still up.

Export monitors Societe Generale de Surveillance and Intertek Agri Services' latest estimates put March 1-15 exports at a combined average of 654,000 tonnes, up 59,000 tonnes or 11.75 per cent from thatin first-half February.

External factors, however, are providing a discouraging ackdrop for the local market. Strength in the US dollar and weakness in US soya-bean oil futures, which also, technically, has gone into bear mode due to expectations for a South American bumper harvest for soybeans, are weighing on world edible oil markets overall.

Conclusion: Market players will this week look to the March 1-20 export estimates for leads.
But if the technicals are any guide this market, in the present bear phase, well fall to as low as RM2,400, the next major technical support level.


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.

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.

The writer welcomes comments and feedback. He can be reached at

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